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Question
According to the Lucas critique, if past increases in the short-term interest rate have always been temporary, then
A) the term-structure relationship using past data will then show only a weak effect of changes in the short-term interest rate on the long-term rate.
B) the term-structure relationship using past data will show no effect of changes in the short-term interest rate on the long-term rate.
C) one cannot predict the term-structure relationship as it depends on expectations.
D) the term-structure relationship using past data will nevertheless show a strong effect of changes in the short-term interest rate on the long-term rate because of a change in the way expectations are formed.
Answer
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Related questions
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Keynes mentioned two factors that influenced planned investment spending:
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Q:
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