The political business cycle does NOT imply that:
A) central banks should be independent of politics.
B) discretionary fiscal policy should be avoided.
C) politicians pumping up the economy in an election year make the economy less stable.
D) monetary policy is ineffective if inflation is high.

Question

Quizplus · Accepted Answer

The political business cycle theory suggests that politicians manipulate macroeconomic policies to enhance their re-election prospects. It does not imply that monetary policy is ineffective if inflation is high.

The Political Business Cycle Does NOT Imply That