According to the Lucas Critique,if Past Increases in the Short-Term

Multiple Choice

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.