The MIT School versus the Chicago School

• Neither school saw full employment as real possibility

• MIT school saw unemployed as buffer stock against inflation

  • Size of buffer stock could be managed by fiscal and monetary policy

  • Too much employment risks inflation

• Chicago school: economy will tend toward natural rate of unemployment ...

  • ... so why do anything about it?

  • Government should try to prevent inflation by regulating growth of money supply

• Federal Reserve acted "as if" there were natural rate of unemployment