Nordhauss theory of political business cycles

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32. Nordhaus’s theory of political business cycles suggests that (a) Democrats care more about unemployment relative to inflation than Republicans do. (b) Republicans are likely to cause recessions in their first terms of office. (c) politicians will use expansionary policy to stimulate the economy in election years. (d) the state of the economy has little influence on elections. Answer: C Level of difficulty: 1 Section: 12.2 33. Combining the partisan theory with rational expectations and the expectations-augmented Phillips curve led Alesina to theorize that when a Democrat is elected as President, inflation will be _____ than expected, while unemployment will _____.
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Chapter 12 Unemployment and Inflation 191 34. One reason for the fall in the natural rate of unemployment since 1980 is 35. Hysteresis in unemployment means 36. The idea that the natural rate of unemployment rises when the actual rate of unemployment rises is known as (a) stabilization. (b) insider-outsider theory. (c) hysteresis. (d) an efficiency wage model. Answer: C Level of difficulty: 1 Section: 12.2 37. The insider-outsider theory suggests that 38. Empirical evidence by Burtless on the effect of unemployment insurance on unemployment suggests that
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192 Abel/Bernanke • Macroeconomics, Fifth Edition
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