The high level of employment consistently maintained by most
western countries during the 1950s and 1960s lent credence to Keynes's view that the level of effective demand was the main determinant of output, and, therefore, of employment. A reappraisal of this view appeared necessary in the 1970s as governments faced accelerating inflation and unemployment. Alternative schools developed, attempting to discredit the notion that government-induced variations in aggregate demand could necessarily maintain output, and, thus, employment, at desired levels. The aim of this paper
is to consider the short-run interrelations between output, employment and wages, with special reference to the small open economy; and to contrast the policy implications for such an economy with those arising from the traditional "Keynesian" closed economy model
