Assume that the Liberal party always had a policy of high money growth while the Conservative party followed a policy of low money growth, and the economy had a standard Phillips curve. Then, if the two parties took regular terms in office:
A)there would be no political business cycle, but inflation would be higher under the Liberal party.
B)there would be no political business cycle, but inflation would be higher under the Conservative party.
C)unemployment would be lower under the Liberal party, but inflation would be higher.
D)both unemployment and inflation would be higher under the Liberal party.

Question

Quizplus · Accepted Answer

Under the standard Phillips curve, higher money growth by the Liberal party would lead to higher inflation, but not necessarily a political business cycle, as the parties alternate regularly.

Assume That the Liberal Party Always Had a Policy of High