One of the advantages of the neo-Keynesian framework is the fact that it can also be used to explain most non-Keynesian theories in inflation by assuming that the NAIRU (and therefore maximum potential output levels) are both unique and achieved fairly quickly. This implies that since the supply side of the economy remains constant, the amount of inflation therefore must be determined by changes in aggregate demand within the overall economy.

A further implication is that with the supply side remaining fixed, both the public and private sectors will be antagonistic to one another due to the fact the government deficit spending may ‘crowd out’ the private sector of the economy without necessarily having any impact on employment levels. Therefore, non-Keynesian economists assert that price levels are determined solely by monetary policy through changes to the money supply.

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