Tradeoff between unemployment and inflation

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Suppose that the tradeoff between unemployment and inflation is determined by the Phillips curve: u=un - α(π-Eπ) Where u denotes the unemployment rate, πn the natural rate of unemployment, π the rate of inflation, and Eπ the expected rate of inflation. In addition, suppose that the country involves two political parties, the Left and Right. Suppose that the Left party always follows a policy of high money growth and the Right party always follows a policy of low money growth. What "political business cycle" pattern of inflation and unemployment would you predict under the following conditions? (a) Every four years, one of the parties takes control based on a random flip of a coin. [Hint: What will expected inflation be prior to the election?] (b) The two parties take turns.

Reference no: EM131097720

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