Assume Individuals Consider Only the Long Run Effects of Changes

question 20

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:

Journal Entries

Records of financial transactions in the accounting system, documenting the details of transactions and their impact on the accounts.

Debits

A transaction recorded in accounts that causes assets to grow or liabilities to shrink on a firm's balance sheet.

Credits

Accounting entries that increase liability or equity accounts, or decrease asset or expense accounts.

Liabilities

Financial obligations or debts that a company owes to others, which must be settled over time through the transfer of assets, provision of services, or other means.