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:

Price Subsidies

Financial assistance provided by the government to lower the cost of goods or services.

Income Subsidies

Financial assistance provided by the government to individuals or groups to help support their income and reduce economic inequality.

Farm Policies

Government rules and programs designed to support farmers, influence agricultural production, stabilize prices, and ensure food security.

Economic Problem

The issue of limited resources with unlimited wants, necessitating choices about what and how to produce for society.