There Is an Election Coming Up A) Outcome a
B) Outcome B
C) Outcome C
D)

There is an election coming up. Liberals can persuade firms whether or not to raise prices; Conservatives can persuade the Bank whether or not to increase the money supply. The Liberals move first. The amount of money raised by each party and the resulting inflation and unemployment rates are given below. What will be the outcome of this game? $$\begin{array} { l l l } & \text { Raise prices } & \text { Don't raise prices } \\\hline \text { Liberal strategy } & \text { Outcome A } & \text { Outcome B } \\\text { Raise } M & \text { Cons.: } \$ 40 & \text { Cons.: \$80 } \\& \text { Libs.: \$60 } & \text { Libs.: \$20 } \\& \pi = 8 \% & \pi = 0 \% \\& u = 8 \% & u = 6 \% \\\text { Conservative strategy } & \text { Outcome C } & \text { Outcome D } \\& \text { Cons.: \$20 } & \text { Cons.: \$60 } \\\text { Don't raise } M & \text { Libs.: } \$ 80 & \text { Libs.: } \$ 40 \\& \pi = 8 \% & \pi = 0 \% \\& u = 9 \% & u = 8 \%\end{array}$$

A) Outcome A
B) Outcome B
C) Outcome C
D) Outcome D