ABSTRACT
The division between micro- and macro-economics is essentially a matter of convenience. Classical theory predicted that the equilibrium of the economy would occur only at full employment since it was assumed that private markets were perfectly competitive and that prices and money wages were flexible. The simultaneous existence of high unemployment and high rates of inflation in western countries since the early 1970s constitute a crisis for macro-economic theory and policy. The essence of Keynes's approach was an attack on the classical assumption of a tendency towards full employment and the substitution for it of the possibility of under-employment equilibrium. Monetarism is essentially a mode of analysis that uses the equation of exchange to organise macro-economic data. The Phillips curve was immediately espoused by many economists who saw it as a new tool for stabilisation, and by policy-makers in government. Much of the debate in economics today is presented to the public as an argument between Keynesians and monetarists.
