Assume Individuals Consider Only the Long- Run Effects of Changes

question 3

Multiple Choice

Assume individuals consider only the long- run effects of changes in future macro variables when forming expectations of future output and future interest rates. Suppose current government spending increases and that individuals expect future government spending to increase. Given this information, we know with certainty that:

• A) future expected output will not change.
• B) current output and the current interest rate will both increase.
• C) current output will not change.
• D) future expected output will decrease.
• E) the future expected interest rate will decrease.