Using a consumption function to explain the Lucas Critique to undergraduate students

Abstract

PurposeThe purpose of this paper is to contribute to the teaching of undergraduate macroeconomics.Design/methodology/approachTo suggest a roadmap, based on a consumption function, to be used by instructors willing to teach the Lucas Critique subject.FindingsTherefore, this paper proposes a lesson, which consists of three parts, to help undergraduates better understand the subject: (1) a grading exercise to bring the topic closer to students’ lives; (2) a Keynesian and an optimal consumption function, followed by an example based on an unemployment insurance policy; and (3) two optional topics consisting of extensions of the optimal consumption function and some empirical results related to the Lucas Critique.Originality/valueThe Lucas Critique influenced the evolution of research in macroeconomics, but it is not easily grasped in a classroom.