Question

What is political economic ? Explain about political business cycel, analysis , tools and dianogesis.

Answer 1

A business cycle resulting from manipulation of policy tools by incumbent politicians. This can be monetary policy, and, the fiscal policy. These are to stimulate the economy prior to an election. It stimulates the economy, and, greatly improves the party's re-election chances. It is to improve chances of a Government getting re-elected. There are political determinants of the macroeconomic cycle. The cycles are in output, inflation, unemployment. Individual political interests benefit economic growth.

As per the political business cycle theory, Governments manipulate output, and, employment for electoral purposes. Ronald Reagan as President is an example. In pre-election periods, spending increases & taxes are cut. Expansionary demand shock creates high employment. Inflationary gap leads to the higher price level. After the election, the Government depresses the demand to slack the inflationary gap. Fiscal, and, monetary policy are the tools.

Discipline in the factories can lead to general political stability. Strikes create political tension. Considering the class conflict driven business cycles, lasting full employment can be unsound. Government policy creates a political business cycle of Government induced recessions, and, booms.