Macroeconomics 5th Edition by Olivier Blanchard

Exercise 1

Using the information in this chapter, label each of the following statements true, false, or uncertain. Explain briefly.
a. Changes in the current one-year real interest rate are likely to have a much larger effect on spending than changes in expected future one-year real interest rates.
b. The introduction of expectations in the goods market model makes the IS curve flatter, although it is still downward sloping.
c. Current money demand depends on current and expected future nominal interest rates. d. The rational expectations assumption implies that consumers take into account the effects of future fiscal policy on output.
e. Expected future fiscal policy affects expected future economic activity but not current economic activity.
f. Depending on its effect on expectations, a fiscal contraction may actually lead to an economic expansion.
g. Ireland's experience with deficit reduction programs in 1982 and 1987 provides strong evidence against the hypothesis that deficit reduction can lead to an output expansion.