Question

“In the Classical framework, policy makers cannot choose optimal combination of unemployment and inflation while in the Keynesian they may.” Use graph explain. thanks.

Answer 1

According to Keynesian theory he emphasize on removing unemployment which is more important than any other factors in theory of employment. He advocated that whenever there is rise in unemployment there is decrease in inflation in the economy.

In his book "General Theory of Employment, Interest and Money, He has explained about the effect and relation between unemployment and inflation. Keynesian theory argues that the solution to a recession is expansion of fiscal measures such as tax cuts to boost consumption and increases in government spending and investment that would shift the aggregate demand curve to the right.

The Philips curve graph pasted below explains the relationship between unemployment and inflation as per Keynesian approach.