Please don\'t copy and paste previously answered questions: Even though the idea
ID: 1162887 • Letter: P
Question
Please don't copy and paste previously answered questions:
Even though the ideas implicit in the Phillips Curve were derived from long-run data from the British economy, it turned out that the trade-off between unemployment and inflation implied by the Phillips Curve was a short-run phenomenon. This implies that using an expansionary fiscal policy produces long-term pain for short-term gain. This was the accepted economic theory in the 1970s. With that in mind, why do you think politicians in most democracies during the 1970s, including Canada and the U.S., opted for the short-term gain despite being aware of the long-term pain?
Explanation / Answer
Yes, the politicians in most democracies during the 1970s, including Canada and the U.S, opted for short term gain despite being aware of the long term pain. This is because politicians use expansionary policy to reduce unemployment rate to attract the vote share and increase their winning counts. They do not consider the fact that consumers are rational and economy i the long run wil remain at natural rate of unemployment and only inflation rate will increase in the long term. Thus, the main goal of the politicians during that time was increasing their vote count and for this they followed this policy even knowing that in the long run it will be a pain for the economy.