Assume Individuals Consider Only the Medium- Run Effects of Changes

question 21

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 policymakers announce a reduction in future government spending. Which of the following will occur as a result of this expected government spending reduction?

• A) A decrease in the expected future interest rate and no change in expected future output.
• B) A decrease in the expected future interest rate and an increase in expected future output.
• C) A decrease in the expected future interest rate and a decrease in expected future output.
• D) A decrease in the expected future interest rate and an ambiguous effect on expected future output.
• E) A decrease in the expected future interest rate and a constant expected future output.

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Definitions:

Assess Performance

The process of systematically evaluating or measuring an individual's, team's, or company's performance against set standards or objectives.

Typical Question

A common or standard inquiry that is often asked in various contexts to gather information or clarify understanding.

Consumer Surplus

The difference between the maximum amount a consumer is willing to pay for a good or service and the actual amount they do pay.

Tax

A tax is a mandatory financial charge or some other type of levy imposed upon a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures.