Assume Individuals Consider Only the Long Run Effects of Changes

question 32

Multiple Choice

Assume individuals consider only the long run effects of changes in future macro variables when forming expectations of future output and future interest rates.Suppose individuals expect future government spending to decrease.Given this information,individuals will expect

• 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:

Insignificant Influence

A situation where an investor does not have enough impact on a business to affect its decisions or policies.

Dividend Revenue

Income received from owning shares in a company which distributes a portion of its earnings to its shareholders.

Insignificant Influence

A term describing an investor's lack of power to affect the operating and financial policies of the investee company.

Gain

The financial benefit obtained when the amount earned from a financial transaction exceeds the amount spent.