Suppose Current Government Spending Increases AND That Individuals Expect Future

question 12

Multiple Choice

Suppose current government spending increases AND that individuals expect future government spending to increase.Given this information,in which of the following cases will output in the current period be more likely to increase?

• A)individuals consider only the short run effects of changes in future macro variables when forming expectations of future output and future interest rates.
• B)individuals consider only the medium run effects of changes in future macro variables when forming expectations of future output and future interest rates.
• C)individuals consider only the long run effects of changes in future macro variables when forming expectations of future output and future interest rates.
• D)the output effects will be the same in B and C.

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Definitions:

Complementary Resources

Assets or inputs that are used together with another resource to produce a good or service, enhancing each other's value in the process.

Employment

The condition of having paid work, involving an agreement where someone is paid to perform specific duties.

Output Effect

The change in output quantity that results from a variation in price, affecting producers' supply levels and market equilibrium.

Complementary Resources

Resources that enhance the value or utility of another resource when used together.