When Answering This Question,assume Individuals Consider Only the Short-Run Effects

question 44

Multiple Choice

When answering this question,assume individuals consider only the short-run effects of changes in future variables when forming expectations of future output and future interest rates.Suppose policy makers announce a reduction in future government spending.Which of the following will occur as a result of this expected reduction in government spending?

• A)a reduction in the expected future interest rate and no change in expected future output
• B)a reduction in the expected future interest rate and an increase in expected future output
• C)a reduction in the expected future interest rate and an ambiguous effect on expected future output
• D)none of the above