Competing macroeconomic models may be hard to test because people may change how they react when economic policies are changed.

Question

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Competing macroeconomic models often make different assumptions about how individuals and firms will react to changes in economic policies. If these assumptions do not hold true, it can be difficult to test which model is more accurate because people's behavior may not match the model's predictions. This is known as the Lucas Critique, named after economist Robert Lucas who argued that macroeconomic models need to account for how people will respond to changes in policies.

Competing Macroeconomic Models May Be Hard to Test Because People