The Lucas supply function indicates that deviations of unemployment from the natural rate level respond to
A)any increase in aggregate demand.
B)unanticipated inflation.
C)a supply shock.
D)expected changes in inflation.

Question

Quizplus · Accepted Answer

The Lucas supply function suggests that only unanticipated inflation, not expected inflation or other factors, causes deviations in unemployment from its natural rate.

The Lucas Supply Function Indicates That Deviations of Unemployment from the Natural