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

Question

Quizplus · Accepted Answer

Individuals expect a monetary expansion in the future, which will lead to an increase in the money supply. This will increase current output and decrease the current interest rate.

Assume Individuals Consider Only the Short Run Effects of Changes