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The Stories We Tell: A Reconsideration of AS/AD Analysis

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  • David Colander

Abstract

This paper explains that the AS/AD model as currently presented in the tests is seriously flawed. It does not fulfill the minimum requirement of a model: logical consistency. Its component parts are derived from models that reflect different, and inconsistent, models of the economy. Moreover, the appropriate disequilibrium adjustment story that appropriately accompanies it is inconsistent with observed reality. In this alternative model, Keynesian adjustment occurs through shifting AS/AD curves along institutionally determined price level vectors rather than through movements along the AS/AD curves.

Suggested Citation

  • 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.
    • Handle: RePEc:aea:jecper:v:9:y:1995:i:3:p:169-88
    Note: DOI: 10.1257/jep.9.3.169
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.9.3.169
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    References listed on IDEAS

    as
    1. David C. Colander, 2018. "The Macrofoundations Of Micro," Chapters, in: How Economics Should Be Done, chapter 10, pages 133-143, Edward Elgar Publishing.
    2. Robert J. Barro, 1994. "The Aggregate-Supply/Aggregate-Demand Model," Eastern Economic Journal, Eastern Economic Association, vol. 20(1), pages 1-6, Winter.
    3. Robert W. Clower, 1994. "The Effective Demand Fraud," Eastern Economic Journal, Eastern Economic Association, vol. 20(4), pages 377-385, Fall.
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    JEL classification:

    • A22 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - Undergraduate

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