The aggregate-supply/ aggregate-demand (AS-AD) model is popular in textbooks, but has problems with logical consistency. In one interpretation, the Keynesian underpinnings of the AD curve-derived from the IS/LM model with downward price stickiness-conflict with the determination of the price level at the intersection of the AS and AD curves. In another view, the model corresponds to rational-expectations theories in which Keynesian properties are absent. In a third interpretation, the model is equivalent to the "complete Keynesian model," which has counterfactual implications for real wages and other variables. The main conclusion is that the AS/AD model should be abandoned.
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Find related papers by JEL classification: E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
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Toichiro Asada & Carl Chiarella & Peter Flaschel & Christian R. Proaño, 2007.
"Keynesian AD-AS, Quo Vadis?,"
Working Paper Series
151, School of Finance and Economics, University of Technology, Sydney.
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