The Lucas supply function, ________ the assumption that expectations are rational, implies that ________ policy changes will have no effect on real output.
A) in combination with; unanticipated
B) in combination with; announced
C) in contrast to; unanticipated
D) in contrast to; announced

Question

Quizplus · Accepted Answer

The Lucas supply function, when combined with the assumption of rational expectations, suggests that announced policy changes will have no effect on real output because individuals will have already adjusted their expectations and behaviors accordingly.

The Lucas Supply Function, ________ the Assumption That Expectations Are