Political Economy
Political Economy
This chapter relates macroeconomics to the political economy. It describes Kenneth Arrow’s “impossibility theorem” regarding voter preferences during elections and explains the theorem’s notion that there is no aggregation procedure which always satisfies a number of natural conditions. It describes the “median voter” model where aggregation is possible, and applies the model to the political economy subject of voting on redistribution. It investigates how adding a random element affects preferences. It also explains how political instability, with regard to the changing of majority, leads to budget deficits.
Keywords: macroeconomics, political economy, Kenneth Arrow, impossibility theorem, voter preferences, median voter, political instability
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