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The Aggregate-Supply/Aggregate-Demand Model

Author

Listed:
  • 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.

Suggested Citation

  • Robert J. Barro, 1994. "The Aggregate-Supply/Aggregate-Demand Model," Eastern Economic Journal, Eastern Economic Association, vol. 20(1), pages 1-6, Winter.
    • Handle: RePEc:eej:eeconj:v:20:y:1994:i:1:p:1-6
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    File URL: http://web.holycross.edu/RePEc/eej/Archive/Volume20/V20N1P1_6.pdf
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    Citations

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    Cited by:

    1. Asada, Toichiro & Chen, Pu & Chiarella, Carl & Flaschel, Peter, 2006. "Keynesian dynamics and the wage-price spiral: A baseline disequilibrium model," Journal of Macroeconomics, Elsevier, vol. 28(1), pages 90-130, March.
    2. Carl Chiarella & Peter Flaschel, 1999. "Disequilibrium Growth Theory: Foundations, Synthesis, Perspectives," Working Paper Series 85, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    3. 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.
    4. 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.
    5. 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.
    6. Toichiro Asada & Carl Chiarella & Peter Flaschel & Christian R. Proaño, 2007. "Keynesian AD-AS, Quo Vadis?," Working Paper Series 151, Finance Discipline Group, UTS Business School, University of Technology, Sydney.

    More about this item

    Keywords

    AS AD; IS LM Model; Supply;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory

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