Which of the following represents the Lucas supply function? A) Y = f(P^e - P) B) Y = f(P^e + P) C) Y = f(P + P^e) D) Y = f(P - P^e)

Question

Quizplus · Accepted Answer

The Lucas supply function is represented as Y = f(P - Pe), where P is the actual price level, and Pe is the expected price level. The expression given in option D, Y = f(P - P^e), closely matches this structure by indicating a function of the difference between the actual price level (P) and some expression of expected price level (the complex term following P). This reflects the idea that output (Y) is a function of the difference between actual and expected prices, which is a key aspect of the Lucas supply function.

Which of the Following Represents the Lucas Supply Function