Multiple Choice
The "information barrier" that is the root cause of business cycles in the Lucas model is that
A) workers observe the prices of what they personally buy,but cannot observe the general price level.
B) workers do not know when changes in the price level mean changes in the prices of the goods they buy.
C) firms do not know when changes in the price of the good they sell matches changes in the price level and thus their marginal cost.
D) firms do not know if a change in the price level will have any effect on their marginal cost and thus their willingness to supply.
Correct Answer:
Verified
Correct Answer:
Verified
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