A government policy deemed to be "temporary" indicates:
A) only long-run expectations are unchanged.
B) only expected exchange rates are unchanged.
C) only prices are not flexible in the short run.
D) there are sticky prices, fixed expected exchange rates, and constant long-run expectations.

Question

Quizplus · Accepted Answer

A temporary government policy implies that agents in the economy do not adjust their long-term expectations based on the policy, assuming it will not last long enough to warrant changes in long-term contracts or plans. This includes keeping expectations about exchange rates and other economic variables constant in the long run, while in the short run, prices may not adjust immediately due to stickiness, leading to temporary economic effects.

A Government Policy Deemed to Be "Temporary" Indicates