Assume Individuals Consider Only the Medium- Run Effects of Changes

question 33

Multiple Choice

Assume individuals consider only the medium- 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) the current interest rate will increase.
• B) future expected output will increase.
• C) current output will increase.
• D) current output and the current interest rate will both increase.
• E) the expected future interest rate will increase.

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Definitions:

Short-Run Aggregate-Supply Curve

A graphical representation that shows the relationship between the total production of goods and services and the price level in the short run.

Aggregate Demand

Aggregate requirement for all types of goods and services across an economy at differing levels of prices, during a specified period.

Aggregate Supply

The complete inventory of goods and services that businesses in an economic setting aim to sell during a designated timeframe.

Aggregate Demand

The total demand for all goods and services in an economy at a given overall price level and in a specific time period, comprising of consumption, investment, government spending, and net exports.