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Suppose that the tradeoff between unemployment md inflation is determined by the Phillips curve: U = u^n - alpha (pi-Epi) where u denotes the unemployment rate, pi? the natural rate of unemployment, pi the rate of inflation, and Epi the expected rate of inflation. In addition, suppose that the country involves two political parties, the Left and the Right. Suppose that the Left party always follows a pol icy 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 the election?] b.two parties take turns.c. Do your answers above support the conclusion that monetary policy should be set by an independent central bank?
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