Individuals expect future government spending to increase

Reference no: EM13692681

Assume individuals consider only the short-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 increase. Given this information, individuals will expect:

a. an increase in the expected future interest rate and no change in expected future output.

b. an increase in the expected future interest rate and an increase in expected future output.

c. an increase in the expected future interest rate and a decrease in expected future output.

d. an increase in the expected future interest rate and an ambiguous effect on expected future output.

e. an increase in the expected future interest rate and a constant expected future output.

Reference no: EM13692681

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