Assume that the Democrats always had a policy of high money growth while the Republicans 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 Democrats.
B) there would be no political business cycle, but inflation would be higher under the Republicans.
C) unemployment would be lower under the Democrats but inflation would be higher.
D) both unemployment and inflation would be higher under the Democrats.

Question

Quizplus · Accepted Answer

Under a standard Phillips curve, higher money growth leads to higher inflation. Therefore, when Democrats are in office with high money growth, inflation would be higher compared to when Republicans are in office with low money growth. However, since the parties take regular terms, the economy would adjust, preventing a political business cycle.

Assume That the Democrats Always Had a Policy of High