According to the Lucas critique, what is the proper way to evaluate a proposal that reduces government borrowing by raising taxes and reducing government spending?
What will be an ideal response?
The Lucas critique emphasizes that changes in economic policy are likely to affect expectations of future policy and economic conditions, and such expectations have a strong impact on the behavioral response to the policy. Though aggregate income is reduced when taxes rise and government spending is reduced, people might expect that the reduction in government borrowing will lead to better economic conditions in the future. Proper policy evaluation must recognize that such optimism can counter the decrease in aggregate demand that might otherwise occur.
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There are debt relief programs currently available for highly indebted poor countries
Indicate whether the statement is true or false
Research confirms that government provision of infrastructure:
A. promotes economic growth. B. leads to reduced spending on research and development. C. increases human capital. D. hinders economic growth.
Figure 1A.2Refer to Figure 1A.2. If this consumer rents 60 DVDs, how many movie tickets will she purchase?
A. 0 B. 5 C. 10 D. 15
Refer to the above figure. How do you describe what is happening as the economy moves from point A to point C?
A. Resources are becoming unemployed. B. Land that was once used to graze sheep is now being used to grow wheat. C. The economy has acquired new resources that are well suited for producing bread. D. The technology for growing wheat has improved.