Expectations about future price levels and future output and employment conditions:
A) have no effect on people's spending behavior.
B) have never been a matter of concern for economic policy makers.
C) can turn fears of inflation or recession into self-fulfilling prophecies.
D) simplify the job of stabilizing the economy by ensuring that everyone sees the future in exactly the same way.

Question

Quizplus · Accepted Answer

Expectations about future economic conditions, such as inflation or recession, can influence people's behavior in ways that might actually bring about those conditions. For example, if people expect inflation, they might start spending more quickly, which can contribute to inflation. Similarly, if they expect a recession, they might cut back on spending, which can help trigger or deepen a recession.

Expectations About Future Price Levels and Future Output and Employment