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 individuals expect the central bank to pursue monetary contraction in the future. Given this information, we know with certainty that:
A) the current output effects are ambiguous.
B) current output will increase.
C) the current interest rate will increase.
D) current output will decrease.
E) current output and the current interest rate will both decrease.

Question

Quizplus · Accepted Answer

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 individuals expect the central bank to pursue monetary contraction in the future. Given this information, we know with certainty that:
A) the current output effects are ambiguous.
B) current output will increase.
C) the current interest rate will increase.
D) current output will decrease.
E) current output and the current interest rate will both decrease.

Assume Individuals Consider Only the Medium- Run Effects of Changes