A new president, who promised during the campaign that he would cut taxes, has just been elected. People trust that he will keep his promise, but the tax cuts will be implemented in the future. Determine the impact of the election on current output, the current interest rate, and current private spending under each of the assumptions in (a) through (c). In each case, indicate what you think will happen to expected future output, expected future interest, and expected future taxes, and then how these changes in expectations affect output today.

a. The central bank will not change its policy.

b. The central bank will act to prevent any change in future output.

c. The central bank will act to prevent any change in future interest rate.