On what aspect of policymaking, according to Robert Lucas, have policymakers been shortsighted in the past?
What will be an ideal response?
The Lucas critique focuses on the fact that people will anticipate policy as they make their decisions so policymakers need to consider the impact on peoples' economic decisions of the policy they will propose. People will not continue to make the same decisions once policies are changed and to think otherwise will likely result in outcomes far from what policymakers expected.
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In the United States, runs on banks are prevented because
A) banks are forbidden to make unprofitable loans. B) banks have the option of denying depositors access to their funds. C) the government guarantees bank accounts for up to $250,000. D) banks keep 100 percent of their deposits on hand.
If the marginal propensity to save (MPS) is 0.1, the multiplier will be
A) 0.1. B) 1. C) 5. D) 10.