Question

The Lucas critique is an objection to the assumption that

A. people form expectations rationally.
B. historical relationships between macroeconomic variables will continue to hold after new policies are in place.
C. inflation is always and everywhere a monetary phenomenon.
D. there is a negative relationship between inflation and unemployment.

Answer 1

The Lucas critique is an objection to the assumption that historical relationships between macroeconomic variables will continue to hold after new policies are in place.

Step-by-step explanation:

The Lucas critique is an objection to the assumption that historical relationships between macroeconomic variables will continue to hold after new policies are in place. This objection was raised by Robert Lucas, an American economist, in the 1970s. He argued that these relationships may change due to people's rational expectations and their response to policy changes. The Lucas critique has been influential in shaping the field of macroeconomics and highlighting the importance of considering people's behavior and expectations in economic analysis.