According to the Lucas supply function, if the expected price level is larger than the actual price level
A) real output increases.
B) real output decreases.
C) nominal output increases.
D) nominal output decreases.

Question

Quizplus · Accepted Answer

According to the Lucas supply function, if the expected price level is larger than the actual price level, firms perceive the relative price of their output to be lower than it actually is, leading them to decrease production. Thus, real output decreases.

According to the Lucas Supply Function, If the Expected Price