The Expectations Effect Is the

question 113

Multiple Choice

The expectations effect is the

• A) increase in the interest rate brought on by an expected increase in Real GDP.
• B) increase in the interest rate due to a higher expected inflation rate.
• C) decrease in the interest rate due to an expected increase in the supply of loanable funds.
• D) idea that people form their expectations of inflation by considering all available information about past,present,and future inflation.
• E) idea that people form their expectations of inflation by considering only information about past inflation experience.

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Definitions:

Capital Flight

The transfer of savings from developing countries to industrially advanced countries to avoid government expropriation, taxation, or higher rates of inflation, or simply to realize greater returns on financial investments.

Export Earnings

The revenue a country or business receives from selling goods and services to other countries.

External Debts

These are funds borrowed by one country from foreign lenders, including private banks, governments or international financial institutions.

Western Europe

A geographical and cultural region of Europe that includes countries such as France, Germany, Italy, and the United Kingdom.