Macro Practice - Political Business Cycle - Independent Central Bank and Inflation & Unemployment

In this problem, given a Phillips Curve and two different political inflation regimes (low and high inflation), we discover how a political system might generate a political business cycle. - also note: we ARE NOT assuming adaptive expectations in this problem! Adaptive expectations imply that expected inflation is equal to current inflation. That's not what's happening here! ----------------------------------------------------------------------------------- 18.1 - Suppose that the trade-off between unemployment and inflation is determined by the Phillips curve: u=u^n-α(π-Eπ) where u denotes the unemployment rate, u^n the natural rate of unemployment, π the rate of inflation, and Eπ the expected rate of inflation. In addition, suppose that the Left Part 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? 2:20 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?) 8:39 b. The two parties take turns. 10:37 c. Do your answers above support the conclusion that monetary policy should be set by an independent central bank? from Mankiw Macroeconomics 8th ed, Chapter on "Alternative perspectives on stabilization policy" ---------------------------------------------------------------------------------------