Assume individuals consider only the short- run effects of changes in future macro variables when forming expectations of future output and future interest rates. A permanent decrease in the interest rate, with no other policy change implemented or anticipated, will most likely cause:
A) an increase in future output and an increase in the future interest rate.
B) an increase in the current interest rate.
C) an unknown effect on the current interest rate.
D) Both A and B.
E) Both B and C.

Question

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The Answer of Assume individuals consider only the short- run effects of changes in future macro variables when forming expectations of future output and future interest rates. A permanent decrease in the interest rate, with no other policy change implemented or anticipated, will most likely cause:
A) an increase in future output and an increase in the future interest rate.
B) an increase in the current interest rate.
C) an unknown effect on the current interest rate.
D) Both A and B.
E) Both B and C.

Assume Individuals Consider Only the Short- Run Effects of Changes