Policy Ineffectiveness Debate

Lucas model believes in the demand side of the market. It explains the policy ineffectiveness debate according to which the predictable part of money supply has no effect on output, income and unemployment. Only unanticipated monetary policy affects output. Inflation rate (price level) is affected by both predictable and unpredictable money supply but only the predictable part affects output. The main components of this model are
Aggregate Demand Relation
Aggregate Supply Relation
Money Supply Rule