Question

The political business cycle refers to the phenomenon that just before elections, politicians enact ________ policies. After the elections, the bad effects of these policies (for example, ________ ) have to be counteracted with ________ policies.
A) expansionary; higher unemployment; contractionary

B) expansionary; a higher inflation rate; contractionary

C) contractionary; higher unemployment; expansionary

D) contractionary; a higher inflation rate; expansionary

Answer 1

Answer:

The correct answer is option B.

Explanation:

The political business cycle can be defined as the fluctuations in the economy caused because of political activities. Often before elections, politicians enact expansionary policy to show economic growth to prove their competence.  

But if used in excess these policies can be harmful to the long term growth of the economy. So after getting re-elected, politicians who are aware of the negative effects of these policies will reverse these policies and adopt a contractionary policy to reduce inflationary pressures.