Assume Individuals Consider Only the Long- Run Effects of Changes

Multiple Choice

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:

A) a decrease in the expected future interest rate and no change in expected future output.
B) a decrease in the expected future interest rate and an increase in expected future output.
C) a decrease in the expected future interest rate and a decrease in expected future output.
D) a decrease in the expected future interest rate and an ambiguous effect on expected future output.
E) a decrease in the expected future interest rate and a constant expected future output.