Robert Lucas and Thomas Sargent argued that a.) there might not be a trade-off b

Question

Robert Lucas and Thomas Sargent argued that

a.) there might not be a trade-off between unemployment and inflation in the short run, and the short-run Phillipns curve would be vertical.

b.) there would always be a trade-off between unemployment and inflation in both the short run, and the long-run and the Phillips curve in both the short and long run would be downward sloping.

c.) there would always be a direct relationship between unemployment and inflation in the short run, and the short run Phillips curve would be upward rising

d.) there would always be a trade-off between unemployment and inflation in the short run, and the short-run phillips curve would be downward sloping.

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If Lucas and Sargent were right,

a.) an expansionary fiscal policy would be more suitable if people had adaptive expectations, since they will use all available information including knowledge of the effects of the Fed's fiscal policy.

b.) an expansionary monetary policy would work better if people had rational expectations, since they will not use all available information especially knowledge of the effects of the Fed's fiscal policy.

c.) an expansionary monetary policy would not work better if people had rational expectations, since they will use all available information especially knowledge of the effects of the Fed's fiscal policy.

d.) a contractionary monetary policy would work better if people had rational expectations, since they will use all available information especially knowledge of the effects of the Fed's fiscal policy.

Explanation / Answer

c.) an expansionary monetary policy would not work better if people had rational expectations, since they will use all available information especially knowledge of the effects of the Fed's fiscal policy.

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