According to the Lucas supply function, the amount of output produced is ________ to the price level if people's expectations of the price level are on target.
A) directly related
B) inversely related
C) negatively related
D) not related

Question

Quizplus · Accepted Answer

According to the Lucas supply function, if people's expectations of the price level are on target, the amount of output produced is not related to the price level. This is because in this scenario, the economy is operating at its potential output level, and any changes in the price level will not affect the level of output. However, if people's expectations of the price level are not on target, the amount of output produced will be affected by changes in the price level.

According to the Lucas Supply Function, the Amount of Output