Question : 31) The Lucas supply function, in combination with the assumption : 1381262

31) The Lucas supply function, in combination with the assumption that expectations are rational, implies that announced policy changes

A) will have no effect on the actual price level.

B) will have no effect on real output.

C) will have no effect on the expected price level.

D) will have no effect on nominal output.

32) According to the Lucas supply function, if people’s expectations are on target, then the amount of output they produce

A) is not related to the price level.

B) is directly related to the price level.

C) will always be below potential GDP.

D) will always be above potential GDP.

33) 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.

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

A) anticipated policy changes have a significant effect on real output.

B) unanticipated policy changes have no effect on real output.

C) anticipated policy changes have no effect on real output.

D) the effect that policy changes have on real output is the same, regardless of whether those changes are anticipated or not.

35) According to the Lucas supply function, in combination with the assumption that expectations are rational, change in government policy can affect real output only if

A) the policy change is correctly anticipated by the public.

B) the policy change is a surprise.

C) the policy change is a mix of both fiscal and monetary policy changes.

D) expansionary policy changes are made.

36) The Lucas supply function, in combination with the assumption that expectations are rational, implies that an announced change in monetary policy affects

A) the actual price level, but not the expected price level.

B) neither the actual price level nor the expected price level.

C) the expected price level, but not the actual price level.

D) both the actual price level and the expected price level.

37) The Lucas supply function, in combination with the assumption that expectations are rational, implies that an announced monetary policy change will lead to

A) a positive price surprise.

B) no price surprise.

C) a negative price surprise.

D) a positive price surprise for expansionary monetary policy and a negative price surprise for contractionary monetary policy.

38) The Lucas supply function, in combination with the assumption that expectations are rational, implies that an announced monetary policy change will

A) not change output.

B) decrease output, but never increase output.

C) either increase or decrease output, depending on the type of monetary policy change.

D) increase output, but never decrease output.

Refer to the information provided in Figure 18.2 below to answer the questions that follow.

Figure 18.2

39) Refer to Figure 18.2. Suppose the economy is at Point A. According to the rational expectation theory, an unanticipated increase in money supply

A) leaves the economy at Point A.

B) moves the economy to Point B.

C) moves the economy to Point C.

D) moves the economy to Point D.

40) Refer to Figure 18.2. Suppose the economy is at Point A. According to the new classical theory, an anticipated increase in aggregate demand

A) leaves the economy at Point A.

B) moves the economy to Point B.

C) moves the economy to Point C.

D) moves the economy to Point D.