When Answering This Question,assume Individuals Consider Only the Medium-Run Effects

Multiple Choice

When answering this question,assume individuals consider only the medium-run effects of changes in future variables when forming expectations of future output and future interest rates Suppose policy makers announce a reduction in future government spending.Which of the following will occur as a result of this expected reduction in government spending?

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