The Lucas Rational Expectations Model and the Frictionless Classical Model

question 45

Multiple Choice

The Lucas rational expectations model and the frictionless classical model

• A)both allow for transitory deviation from full employment
• B)both predict that neither fiscal nor monetary policy can affect the equilibrium level of output in the long run
• C)both predict that the short-run outcome will be different depending on whether a policy is anticipated or unanticipated
• D)disagree in one aspect: the classical model assumes that people do not make systematic errors, but Lucas assumes they do
• E)disagree on the long-run outcome of fiscal policy changes

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Definitions:

Applied Psychology

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