Assume Individuals Consider Only the Short- Run Effects of Changes

question 32

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 contraction in the future. Given this information, we know with certainty that:

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

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