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 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 short- 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:

Explain why the new IS curve that takes into account expectations is likely to be steeper than the original IS curve that ignored expectations.

Discuss the three possible channels that credit or quantitative easing may affect the economy.

Which of the following individuals was responsible for introducing rational expectations into macroeconomic models?

Rational expectations assume that individuals:

A change in which of the following variables will cause a shift of the IS curve in the current period?

An increase in which of the following variables will cause a decrease in money demand in the current period?

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

Which of the following will cause the LM curve to shift down?

Which of the following would be a violation of the rational expectations assumption?

Suppose there is a monetary expansion. This monetary expansion will always cause a greater increase in output when accompanied by:

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 increase. Given this information, individuals will expect:

Explain what effect a decrease in the future expected interest rate will have on the IS curve and LM curve in the current period.

Suppose there is a fiscal expansion in the current period. This fiscal expansion will tend to cause a smaller increase in current output when:

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

Which of the following will not cause aggregate private spending to decrease?

An increase in expected future taxes will cause: