Which of the following best defines the political business cycle?
A) the fact that about every four years some politician advocates greater government control of the Bank of Canada
B) the potential for a central bank to use monetary policy to stimulate the economy and help the incumbent get re-elected
C) the part of the business cycle that reflects reluctance by politicians to smooth out the business cycle
D) the changes in output created by the monetary rule the Bank of Canada must follow

Question

Quizplus · Accepted Answer

The political business cycle refers to the phenomenon where incumbents use expansionary fiscal or monetary policies to stimulate the economy and increase popularity in the lead up to an election. This strategy can be particularly effective if the central bank is willing to cooperate by using its monetary policy tools to stimulate the economy. Therefore, option B best defines the political business cycle.

Which of the Following Best Defines the Political Business Cycle