the economics of money, banking, and financial markets

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Economics of Money, Banking & Financial Markets, 5e (Mishkin)
Chapter 26 The Role of Expectations in Monetary Policy

26.1 Lucas Critique of Policy Evaluation

1. 
   

   Today, most economists ____.
   A) accept that expectations formation will change when the behavior of forecasted variables
   changes
   B) believe that the Lucas critique has been discredited
   C) accept the notion that there is no role for discretionary stabilization policy
   D) believe that having policy credibility is not an important factor to a successful anti-inflation
   policy
   Answer: A
   Diff: 2 Type: MC Page Ref: 621
   Skill: Recall
   Objective List: 26.1 Describe the Lucas critique for policy evaluation

   
   


2. 
   

   Whether one views the discretionary policies of the 1960s and 1970s as destabilizing or
   believes the economy would have been less stable without these policies, most economists agree
   that ____.
   A) stabilization policies proved more difficult in practice than many economists had expected
   B) stabilization policies proved not to be inflationary
   C) the nondiscretionary policymakers were right in believing that the private economy is
   inherently stable
   D) the discretionary policymakers were right in believing that the private economy is inherently
   stable
   Answer: A
   Diff: 2 Type: MC Page Ref: 619
   Skill: Recall
   Objective List: 26.1 Describe the Lucas critique for policy evaluation

   
   


3. 
   

   The argument that econometric policy evaluation is likely to be misleading if policymakers
   assume stable economic relationships is known as ____.
   A) the monetarist revolution
   B) the Lucas critique
   C) public choice theory
   D) new Keynesian theory
   Answer: B
   Diff: 2 Type: MC Page Ref: 620
   Skill: Recall
   Objective List: 26.1 Describe the Lucas critique for policy evaluation