Real and Nominal Magnitudes in Economics

Extract

There has been a long-standing doctrine that high levels of employment tend to be accompanied by inflation. Closely related is the view that unemployment or slack economic conditions in general can be relieved by increases in the supply of money. These views have been held by economists of widely varying persuasions and particularly with widely varying views on appropriate economic policy. During the postwar period, the concept of a trade-off between inflation and unemployment was studied empirically and also used an extension of the basic Keynesian framework of analysis (a needed supplement since the General Theory had little to say about price movements in the absence of full employment).