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

question 54

Multiple Choice

When answering this question,assume individuals consider only the medium-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 a reduction in expected future output
• D)a reduction in the expected future interest rate and an ambiguous effect on expected future output

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Definitions:

Units

A measure of quantity, often used in inventory management, production, and accounting, to quantify items or services.

Variable Cost

Rephrased: Expenses that vary with production output or business activity levels.

Units

A basic measure of the quantity of a product or service produced or sold.

Sold

The completion of a transaction where goods or services are exchanged for money.