Assume individuals consider only the medium- 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) the current interest rate will increase.
B) future expected output will increase.
C) current output will increase.
D) current output and the current interest rate will both increase.
E) the expected future interest rate will increase.

Question

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The Answer of Assume individuals consider only the medium- 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) the current interest rate will increase.
B) future expected output will increase.
C) current output will increase.
D) current output and the current interest rate will both increase.
E) the expected future interest rate will increase.

Assume Individuals Consider Only the Medium- Run Effects of Changes