Why might an equation that has always predicted accurately in the past prove to be wrong following a policy change?
A) Because the policy may change people's behavior and invalidate the equation.
B) Because people's expectations may cease to be rational.
C) Because uncertainty means that every equation contains some degree of error.
D) Because the policy change may affect economic variables not contained in the equation.

Question

Quizplus · Accepted Answer

A policy change can alter people's behavior, which can invalidate the assumptions or relationships that the equation was based on.

Why Might an Equation That Has Always Predicted Accurately in the Past