Assume That the Democrats Always Had a Policy of High

question 41

Multiple Choice

Assume that the Democrats always had a policy of high money growth whereas 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.

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Definitions:

Marginal Cost

The hike in cost resulting from the creation of one more unit of a product or service.

Cartel

An agreement among competing firms to control prices or exclude entry of a new competitor in a market, often leading to higher prices and restricted supply.

Marginal Cost

The hike in overall financial outlay due to producing an extra unit of a product or service.

Total Industry Profit

The cumulative profit earned by all companies operating within a specific industry.