Recall the Application about the links between presidential elections and macroeconomic performance to answer the following question(s). Early theories on the links between presidential elections and macroeconomic performance focused on incumbent presidents trying to manipulate the economy in their favor to gain reelection. Subsequent research began to incorporate other factors. The first innovation was recognizing that political parties can have different goals or preferences on how to manipulate the economy. In the United States, Republicans historically have been more concerned about fighting inflation, whereas Democrats have concentrated on reducing unemployment. The second major innovation was recognizing that the public would anticipate that politicians will try to manipulate the economy before an election.
Republicans have historically been primarily concerned with fighting inflation. Assuming this is true, then after a Republican electoral victory, the public could anticipate which of the following economic actions to fight inflation?
▸ open market sales and a decrease in government spending
▸ a decrease in the discount rate and an increase in reserve requirements
▸ an increase in taxes and an increase in government spending
▸ open market purchases and a decrease in taxes
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