Lucas's idea of information barriers as applied to the formation of inflation expectations is an example of
A)forward-looking expectations.
B)backward-looking expectations.
C)adaptive expectations.
D)irrational expectations.

Question

Quizplus · Accepted Answer

Lucas's idea emphasized the importance of forward-looking expectations in the formation of inflation expectations. Information barriers could prevent people from accessing all relevant information, which would then affect their expectations for inflation in the future. Therefore, individuals would base their expectations on current and future economic conditions rather than past experiences. This aligns with the concept of forward-looking expectations, which assume that individuals make decisions and form expectations based on their beliefs about future events rather than past experiences.

Lucas's Idea of Information Barriers as Applied to the Formation