According to the Lucas supply function, the economy will produce ________ output when prices are unexpectedly ________ than when prices are at their expected level.
A) more; higher
B) the same; lower
C) the same; higher
D) less; higher

Question

Quizplus · Accepted Answer

The Lucas supply function suggests that if prices are unexpectedly higher, firms will increase their output because they mistake the higher prices for an increase in the relative price of their products, rather than an overall increase in the price level.

According to the Lucas Supply Function, the Economy Will Produce