The fact that traditional methods of policy evaluation do not take into account the impact of policy on expectations is known as:
A) stabilization policy.
B) the political business cycle.
C) the Lucas critique.
D) Okun's law.

Question

Quizplus · Accepted Answer

The fact that traditional methods of policy evaluation do not take into account the impact of policy on expectations is known as the Lucas critique. This idea was developed by economist Robert Lucas, who argued that economic agents' behavior is based on their expectations of the future, which are shaped by current policies. Therefore, policy evaluations must take into account agents' expectations, which can be difficult to model and predict.

The Fact That Traditional Methods of Policy Evaluation Do Not