Exam 17: Expectations, Output and Policy

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 policymakers announce a reduction in future government spending. Which of the following will occur as a result of this expected government spending reduction?

Suppose fiscal policy makers pass a budget that raises taxes in the current period and are expected to increase taxes in the future. Use the IS- LM model to illustrate graphically and explain the effects of this policy on current output and the current interest rate.

Suppose there is an increase in expected future output. This will cause which of the following to occur?

Assume individuals consider only the long- run effects of changes in future macro variables when forming expectations of future output and future interest rates. Suppose individuals expect future government spending to decrease. Given this information, individuals will expect:

Explain whether a fiscal policy that causes an increase in current and future government spending can cause a reduction in current output.

Suppose there is a decrease in expected future output. This will cause which of the following to occur?

Suppose policymakers pass a budget that reduces the budget deficit. A deficit reduction package such as this has a greater chance of increasing current output when:

A change in which of the following variables would have a direct effect on money demand in the current period?

Suppose there is an increase in the expected future interest rate. This will cause which of the following to occur?

Suppose current government spending decreases and that individuals expect future government spending to decrease. Given this information, in which of the following cases will output in the current period be more likely to decrease?

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 policymakers announce a reduction in future government spending. Which of the following will occur as a result of this expected government spending reduction?

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 monetary contraction in the future. Given this information, we know with certainty that:

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 current government spending increases and that individuals expect future government spending to increase. Given this information, we know with certainty that:

Suppose the central bank announces that it will pursue monetary contraction in the current period and continue with the same policy in the future. Explain how the credibility of the central bank might influence the effectiveness of this monetary policy action and announcement of a future monetary policy action.

Suppose current government spending decreases and that individuals expect future government spending to decrease. Given this information, in which of the following cases will output in the current period be more likely to increase?

Assume that the current demand for goods depends on expectations in the IS- LM model. A monetary expansion in the current period will cause a rightward shift in the IS curve if:

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 expansion in the future. Given this information, we know with certainty that:

Which of the following will cause aggregate private spending to increase?

Suppose there is a decrease in expected future taxes. This will cause which of the following to occur?

Suppose that the RBA raises the current interest rate by decreasing the money supply, with no other policy change implemented or anticipated. Which of the following shifts in the IS and/or LM curves will take place in the current period?