Assume Individuals Consider Only the Long Run Effects of Changes

question 35

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 current government spending increases and that individuals expect future government spending to increase.Given this information,we know with certainty that

• A)current output and the current interest rate will both increase.
• B)current output will not change.
• C)future expected output will decrease.
• D)future expected output will not change.

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Definitions:

Agent

An individual or entity authorized to act on behalf of another person or entity, known as the principal, in various transactions or negotiations.

Fiduciaries

Individuals or organizations entrusted to manage assets or decisions for another party, often with a legal obligation to act in the latter's best interest.

Principals

The main parties involved in a transaction or contract, including those who have the authority to make decisions and agreements.

Employers

Employers are individuals or organizations that hire and pay people to work for them, providing compensation in the form of wages or salary in exchange for their labor or services.