1. Say that Republicans can persuade firms whether or not to raise prices; Democrats can persuade the Fed whether or not to increase interest rates (decrease the money supply). The amount of money raised by each party and the resulting inflation and unemployment rates are given in the table below. Assume that each party maximizes contributions. a. If the Republicans can move first, what will be the equilibrium outcome? b. If the Democrats can move first, what will be the equilibrium outcome? c. Suppose the roles are reversed, and the Democrats can affect prices while the Republicans affect monetary policy (the payoffs don't change, just switch the strategies - that is, in the chart, just switch "Democrat" and "Republican"). What would be the equilibrium outcome if the Democrats move first? If the Republicans do? Democrats' Strategy Increase interest rate Do not increase interest rate Republicans' Strategy Increase prices Outcome A: Outcome B: Dems: $800 Dems: $1,000 Reps: $500 Reps: $300 Inflation=6% Inflation=7% Unemployment=8% Unemployment=6% Do not increase prices Outcome C: Outcome D: Dems: $400 Dems: $600 Reps: $1,100 Reps: $900 Inflation=2% Inflation=4% Unemployment=10% Unemployment=8%