Consider two political parties with different positions on economic issues competing for the office. The difference in interests is represented by the partisan loss function: L' = (yr -y))2+ 0(nut - n))2, for party j = R, L, (10) where y' is j's target rate of output, ^ is j's target rate of inflation, and O' is the relative weight put on inflation deviations relative to output deviations by party j. We assume that the left-wing party has a higher output target and higher inflation target than the right-wing party: yl 2 y and a 2 R (for simplicity: 0! = QR = 0). The output in this economy is defined by the Lucas-supply function as an "inflation- surprise": yo = 1 - 1, (11) But in contrast to the previous model, we assume here that the voters have "static expectations" on inflation so that . = 0. a) Compute the resulting inflation rate and the output in this economy which char- acterize left-wing and right-wing administrations! b) Comment on the role of the expectation building assumptions in both models