This helps to boost disposable income, increase economic growth and reduce unemployment. Shortly before an election, there is a temptation to reduce interest rates. This means that the incumbent government sought to influence the economic cycle to coincide with elections. The feeling was that when the government was responsible for setting interest rates, there was a political business cycle. The Central Bank officials are appointed by the government and are given broad guidelines (e.g. The idea is that Central Banks will be more independent of political considerations and willing to keep inflation low – even if there are political costs to raising interest rates. However, in recent years, there has been a trend to give monetary policy to independent Central Banks. Monetary policy (mainly interest rates) used to be managed by the government.
