Question

Do you believe that business cycles are related to political elections? Explain your thoughts why or why not.

Answer 1

Business cycles are witnessed when there are rise and fall in aggregate demand. Increase in demand leads to significant expansion and while fall in spending causes contractions.

It has been seen over the past few years, that government tends to increase spending when election approaches near. Government assumes that it will be reelected if it makes huge expenditure on various social and economic activities. Hence, there is significant rise in aggregate demand, both employments and inflation witnesses rise. But after getting elected, the political party now reverses its course of action and reduce spending. Eventually, phases of contractions set in. Again price fall and unemployment might rise.

To sum up, government does not follow rational monetary and fiscal policies and creates artificial booms and busts. Monetary policy should be independent of government control. Monetary policy is more susceptible to be misused by government to accomplish objectives which are inconsistent with public interest.