The political business cycle refers to
A)the fact that about every four years some politician advocates greater government control of the Fed.
B)the potential for a central bank to increase the money supply and therefore real GDP to help the incumbent get re-elected.
C)the part of the business cycle caused by the reluctance of politicians to smooth the business cycle.
D)changes in output created by the monetary rule the Fed must follow.

Question

Quizplus · Accepted Answer

The political business cycle refers to the theory that politicians manipulate economic policies to stimulate the economy in order to enhance their chances of re-election. Specifically, the central bank may increase the money supply and lower interest rates to boost economic growth and employment, which leads to a reduction in unemployment and an increase in real GDP, helping the incumbent get re-elected.

The Political Business Cycle Refers to