Question

According to the political business cycle, after an election, unless the central bank acts inflation is likely to

a. have risen. To counter this the central bank would raise interest rates.

b. have risen. To counter this the central bank would lower interest rates.

c. have fallen. To counter this the central bank would raise interest rates.

d. have fallen. To counter this the central bank would lower interest rates.

Answer 1

Option a

a. have risen. To counter this, the central bank would raise interest rates

A political motive is to earn vote, so just before elections frequently it uses expansionary fiscal or monetary policy to increase growth so after election the inflation rises as the expansionary policies increases consumption and investments which increases price level and inflation but after election usually central bank decrease money supply and increases the interest rate to control the inflation.