According to the Lucas supply function, if people's expectations are on target, then the amount of output they produce
A) is not related to the price level.
B) is directly related to the price level.
C) will always be below potential GDP.
D) will always be above potential GDP.

Question

Quizplus · Accepted Answer

According to the Lucas supply function, if people's expectations are on target, then the amount of output they produce is not related to the price level. This is because in this case, prices are anticipated and included in the decision-making process, and the aggregate supply curve is vertical at potential GDP.

According to the Lucas Supply Function, If People's Expectations Are