... its greatest impact in the short run on output and employment, not on prices o Phillips curve * Demand side policies alone cannot succeed completely * There will always be unwanted inflation and unemployment o Inflation changes slowly when unemployment changes * In the long run we are all dead therefore what matters now is the short run o The principle of cumulative causation (an initial event can cause an ultimate effect that is much larger) o Multiplier effect: an initial increase in aggregate demand of £xm leads to an eventual rise in national income that is greater than £xm * Wages and prices are sticky, a major sticky point between monetarists and Keynesians o Respond slowly to changes in supply and demand, this can result in inefficient markets i.e shortages and surpluses, especially labour o Spending, consumption, investment, or government expenditures cause output to fluctuate. * The natural rate of employment is not necessary the "ideal" o In the past ...

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