Economics of Money, Banking and Financial Markets (12th Edition) (What's New in Economics)
Economics of Money, Banking and Financial Markets (12th Edition) (What's New in Economics)
12th Edition
ISBN: 9780134733821
Author: Frederic S. Mishkin
Publisher: PEARSON
bartleby

Concept explainers

Question
Book Icon
Chapter 24, Problem 1Q
To determine

The things that Lucas critique states about the limitations of the current understanding of the way in which the economy works.

Expert Solution & Answer
Check Mark

Explanation of Solution

The Lucas critique states those policymakers’ predictions for the effects of the given policy may generally be wrong as it is difficult for someone to accurately take in account the reaction of the people due to changes in the policy. This thing points out the limitation regarding the current understanding of the way in which economy works. It states that the reaction of people’s reaction and behavior cannot be predicted by the policymakers. Therefore, they have to rely on various models to predict or estimate the effects of change in the policy in an economy.

Thus, Lucas critique states about the limitations of the current understanding of the way in which the economy works.

Economics Concept Introduction

Introduction: Lucas critique refers to a critique that argues that it is not good to try to predict the changes in the economic policy on the basis of the past data available. It criticizes the Keynesian models and argues that it cannot be considered structured as it is invariant in response to changes in the policy variables of the government.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Knowledge Booster
Background pattern image
Economics
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Text book image
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:9780190931919
Author:NEWNAN
Publisher:Oxford University Press
Text book image
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Text book image
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Text book image
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Text book image
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Text book image
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education