ABSTRACT
Almost as soon as government commitments to maintain ‘full employment’ were suggested, the fear was expressed that such commitments would have inflationary consequences. However, the early Keynesian approach did not have a theory of what determined inflation. At most it predicted that there would be inflation if desired expenditure exceeded the level of output corresponding to full employment, but it did not predict or explain how much inflation there would be. After some review of definitions, we discuss how this gap was filled in by the famous ‘Phillips Curve’ and its explanations, and the resulting implications for policy.
