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Aggregate Demand and Supply

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  • Roger E. A. Farmer

Abstract

This paper is part of a broader project that provides a microfoundation to the General Theory of J.M. Keynes. I call this project 'old Keynesian economics' to distinguish it from new-Keynesian economics, a theory that is based on the idea that to make sense of Keynes we must assume that prices are sticky. I describe a multi-good model in which I interpret the definitions of aggregate demand and supply found in the General Theory through the lens of a search theory of the labor market. I argue that Keynes' aggregate supply curve can be interpreted as the aggregate of a set of first order conditions for the optimal choice of labor and, using this interpretation, I reintroduce a diagram that was central to the textbook teaching of Keynesian economics in the immediate post-war period.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13406.

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Date of creation: Sep 2007
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Publication status: published as Roger E. A. Farmer, 2008. "Aggregate demand and supply," International Journal of Economic Theory, The International Society for Economic Theory, vol. 4(1), pages 77-93.
Handle: RePEc:nbr:nberwo:13406

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  1. Roger E. A. Farmer, 1999. "Macroeconomics of Self-fulfilling Prophecies, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262062038, December.
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