Assume Individuals Consider Only the Medium Run Effects of Changes

question 42

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 taxes are cut AND that individuals expect future taxes to decrease.Given this information,we know with certainty that

• A)current output and the current interest rate will both increase.
• B)current output will increase.
• C)the current interest rate will increase.
• D)the expected future interest rate will increase.

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