Assume Individuals Consider Only the Short- Run Effects of Changes

question 6

Multiple Choice

Assume individuals consider only the short- run effects of changes in future macro variables when forming expectations of future output and future interest rates. Suppose individuals expect the central bank to pursue monetary expansion in the future. Given this information, we know with certainty that:

• A) the current interest rate effects are ambiguous.
• B) current output will decrease.
• C) the current output effects are ambiguous.
• D) current output and the current interest rate will both increase.
• E) the current interest rate will decrease.

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Definitions:

Fixed Manufacturing Overhead

The set of costs associated with the production process that do not change with the level of production, including rent, salaries, and insurance.

Job-Order Costing System

A cost accounting system that accumulates manufacturing costs separately for each job or batch.

Predetermined Overhead Rate

A rate used to allocate manufacturing overhead costs to individual products or job orders, based on a pre-established criterion such as direct labor hours.

Machine-Hours

A measure of production time, representing the number of hours a machine is operated in the production of goods.