Assume that the left-wing party always had a policy of high money growth whereas the right-wing 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 left-wing party.
B) there would be no political business cycle,but inflation would be higher under the right-wing party.
C) unemployment would be lower under the left-wing party but inflation would be higher.
D) both unemployment and inflation would be higher under the left-wing party.

Question

Quizplus · Accepted Answer

Under a standard Phillips curve, higher money growth by the left-wing party would lead to higher inflation, but not necessarily affect unemployment in the long term, thus not creating a political business cycle.

Assume That the Left-Wing Party Always Had a Policy of High