The Lucas Supply Function, in Combination with the Assumption That

question 62

Multiple Choice

The Lucas supply function, in combination with the assumption that expectations are rational, implies that

• A) neither anticipated monetary policy changes nor anticipated fiscal policy changes will have an effect on real output.
• B) an anticipated monetary policy change will have an effect on real output, but an anticipated fiscal policy change will not have an effect on real output.
• C) both anticipated monetary and fiscal policy changes will affect real output.
• D) an anticipated monetary policy change will have no effect on real output, but an anticipated fiscal policy change will have an effect on real output.

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Definitions:

Transactions

Transactions are actions carried out between two or more parties that involve the exchange of goods, services, or financial assets.

Original Issue Discount

Refers to the discount from the par value at which a bond or other debt instrument is issued, resulting in a difference that is treated as tax-exempt or taxable interest over the life of the bond.

OID

Original Issue Discount, the difference between the original issue price of a bond and its par value, which is treated as interest by the IRS.

Computed

Refers to the result obtained after performing a mathematical calculation or processing data using a computer.