The argument that when policy changes,people's behavior changes so that historical relationships between macroeconomic variables will no longer hold is known as
A)the Phillips curve.
B)the policy irrelevance hypothesis.
C)hysteresis.
D)the Lucas critique.

Question

Quizplus · Accepted Answer

The argument that when policy changes, people's behavior changes so that historical relationships between macroeconomic variables will no longer hold is known as the Lucas critique. Robert Lucas first presented this critique in 1976, and it implies that econometric models that do not consider how policy intervention affects individual behavior will make inaccurate predictions.

The Argument That When Policy Changes,people's Behavior Changes So That