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After the 1970's stagflation, Keynesian economists now understand that when it comes to negative supply shocks, policy responses: were more successful when using a contractionary monetary or fiscal policy. were more successful when using an expansionary monetary or fiscal policy.

lead to increasing either unemployment or inflation and thus offered no good economic solution regardless of policy type implemented.

User Strick
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After the 1970s stagflation, Keynesian economists now understand that policy responses were more successful when using an expansionary monetary or fiscal policy. This shift in understanding came as a response to the challenges posed by stagflation, which was characterized by both high inflation and high unemployment, contrary to the traditional Keynesian assumption that inflation and unemployment had an inverse relationship. Keynesian economists realized that during negative supply shocks, such as the oil crises in the 1970s, conventional contractionary policies would exacerbate both inflation and unemployment. Instead, expansionary policies, such as increasing government spending or lowering interest rates, were seen as more effective in stimulating economic growth and reducing unemployment without significantly worsening inflation.

User Edariedl
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