If There Is a Political Business Cycle and the Federal

question 36

Multiple Choice

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.

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Definitions:

Opening Stock

The value of inventory that a company has on hand at the beginning of an accounting period.

Variable Costs

Costs that vary directly with the level of production or sales volume, such as materials and labor.

Fixed Overheads

Costs that do not vary with the level of production or sales activity, such as rent, salaries, and insurance.

Variable Cost Per Unit

The amount of variable expenses incurred to produce one unit of a product or service.