If there is a political business cycle and the Federal Reserve supports the incumbent,then we should expect that prior to elections the Fed would
A)raise interest rates to shift aggregate demand left.
B)raise interest rates to shift aggregate demand right.
C)reduce interest rates to shift aggregate demand left.
D)reduce interest rates to shift aggregate demand right.

Question

Quizplus · Accepted Answer

If there is a political business cycle and the Federal Reserve supports the incumbent, then the Fed would try to stimulate the economy before the election to increase the chances of the incumbent being reelected. To achieve this, the Fed would reduce interest rates to shift aggregate demand right, which would stimulate the economy and increase output and employment levels. This would create a favorable economic climate for the incumbent and increase the chances of their reelection.

If There Is a Political Business Cycle and the Federal