Question

The Lucas critique argues that because the way people form expectations is based ______ on government policies, economists ______ predict the effect of a change in policy without taking changing expectations into account.

Answer 1

The critique stated that sinve people's formed expectations is based partly on government policies, then, economists cannot predict the effect of a change in policy.

What is the Lucas critique?

This is a work of Robert Lucas that asserts that it is naive to predict the effects of a change in economic policy base on the relationships observed in historical data

The work states that since people formed expectations is based partly on government policies, the economists cannot predict the effect of a change in policy.

Therefore, the Option A is correct,

Missing options A.) Partly; cannot, B.) Only partly; can, C.) In no way; can, D.) In no way; cannot.

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