Robert Lucas

  • Chicago University economist and Nobel laureate Robert E Lucas, 85, passed away recently.
  • He won the Nobel Prize in 1995 for his work on rational expectations and efficacy of government intervention in economy.
  • He argued that if people are rational, which is assumed in microeconomics, then government intervention will only have an impact on prices and inflation if it is unexpected or unpredictable.
  • Otherwise, people adjust their expectations for future inflation as soon as policy is announced and it then has no impact on prices as well as the inflation.
  • His research was seen as a direct confrontation with Keynesian economics, which said that with other factors constant, government spending can lead to a rise in output.
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