... Keynes, on the other hand, believed that assuming underemployment and underproduction in the short run, the supply curve is horizontal and changes in the money supply will have no effect on prices but only lead to an increase in employment. Keynes assumed money wage stickiness and money illusion. In both theories there is no trade off between inflation and unemployment, however the empirical observation named Phillips curve suggested that there is a relationship between the two. The aim of this essay is to explain NRU (market clearing rate of unemployment) and NAIRU (equilibrium rate where inflation is stable but there still can be some involuntary unemployment), distinguish between the two and comment on how useful these concepts are in explaining such a phenomena as OECD economies' unemployment, where unemployment continued to grow even when inflation was stabilised. In General Theory there is very little explanation about the determination of the movement ...

See this essay or coursework document in full right now