According to the Lucas supply function, in combination with the assumption that expectations are rational, change in government policy can affect real output only if
A) the policy change is correctly anticipated by the public.
B) the policy change is a surprise.
C) the policy change is a mix of both fiscal and monetary policy changes.
D) expansionary policy changes are made.

Question

Quizplus · Accepted Answer

The Lucas supply function, in the context of rational expectations, posits that only unanticipated policy changes (i.e., surprises) can affect real output because anticipated changes are already factored into economic agents' decision-making processes.

According to the Lucas Supply Function, in Combination with the Assumption