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The Aggregate-Supply/Aggregate-Demand Model

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Author Info

  • Robert J. Barro

    (Harvard University)

Abstract

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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File URL: http://college.holycross.edu/RePEc/eej/Archive/Volume20/V20N1P1_6.pdf
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Bibliographic Info

Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

Volume (Year): 20 (1994)
Issue (Month): 1 (Winter)
Pages: 1-6

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Handle: RePEc:eej:eeconj:v:20:y:1994:i:1:p:1-6

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Postal: c/o Dr. Alexandre Olbrecht, The Anisfield School of Business 205, Ramapo College, 505 Ramapo Valley Road, Ramapo, New Jersey 07430, USA
Phone: (201) 684-7346
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Web page: http://www.ramapo.edu/eea/journal.html
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Related research

Keywords: AS AD; IS LM Model; Supply;

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Cited by:
  1. Toichiro Asada & Carl Chiarella & Peter Flaschel & Christian R. ProaƱo, 2007. "Keynesian AD-AS, Quo Vadis?," Working Paper Series 151, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
  2. David Colander, 1995. "The Stories We Tell: A Reconsideration of AS/AD Analysis," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 169-188, Summer.
  3. Toichiro Asada & Pu Chen & Carl Chiarella & Peter Flaschel, 2004. "Keynesian Dynamics and the Wage-Price Spiral: A Baseline Disequilibrium Model," Working Paper Series 139, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
  4. Ekkehard Ernst & Peter Flaschel & Christian Proano & Willi Semmler, 2006. "Disequilibrium Macroeconomic Dynamics, Income Distribution and Wage-Price Phillips Curves," IMK Working Paper 04-2006, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  5. Pu Chen & Carl Chiarella & Peter Flaschel & Willi Semmler, 2006. "Keynesian Macrodynamics and the Phillips Curve. An Estimated Baseline Macromodel for the U.S. Economy," Working Paper Series 147, Finance Discipline Group, UTS Business School, University of Technology, Sydney.

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