According to the Lucas supply function, ________ affect(s) actual and expected price levels in different ways.
A) any announced policy change
B) any unanticipated policy change
C) only unanticipated fiscal policy changes
D) only unanticipated monetary policy changes

Question

Quizplus · Accepted Answer

According to the Lucas supply function, any unanticipated policy change affects actual and expected price levels in different ways. This is because if a policy change is announced, people and firms can adjust their behavior in anticipation of the future impact of the policy change. However, if a policy change is unanticipated, people and firms cannot adjust their behavior beforehand, and the actual impact of the policy change on price levels may differ from what was expected.

According to the Lucas Supply Function, ________ Affect(s) Actual and Expected