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On an Alleged Inconsistency in Aggregate-Supply/Aggregate-Demand Analysis


  • Amitava Krishna Dutt

    (University of Notre Dame)


It has been argued that aggregate-supply/aggregate-demand (AS/AD) models suffer from an inconsistency because they assume that firms set price and adjust quantity for the AD curve and are profit-maximizing price takers for the AS curve. It is shown that this inconsistency is rife in intermediate macroeconomic texts. However, it is argued that the problem can be solved by appropriately reinterpreting the AD curve and the dynamics of the model. Thus while there is no need to jettison the AS/AD model as a teaching tool on grounds of internal inconsistency, there is a need to interpret it carefully.

Suggested Citation

  • Amitava Krishna Dutt, 1997. "On an Alleged Inconsistency in Aggregate-Supply/Aggregate-Demand Analysis," Eastern Economic Journal, Eastern Economic Association, vol. 23(4), pages 469-476, Fall.
  • Handle: RePEc:eej:eeconj:v:23:y:1997:i:4:p:469-476

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    References listed on IDEAS

    1. Michael Grossman & Frank J. Chaloupka & Henry Saffer & Adit Laixuthai, 1993. "Effects of Alcohol Price Policy on Youth," NBER Working Papers 4385, National Bureau of Economic Research, Inc.
    2. Chaloupka, Frank J & Saffer, Henry & Grossman, Michael, 1993. "Alcohol-Control Policies and Motor-Vehicle Fatalities," The Journal of Legal Studies, University of Chicago Press, vol. 22(1), pages 161-186, January.
    3. Henry Saffer & Michael Grossman, 1986. "Beer Taxes, the Legal Drinking Age, and Youth Motor Vehicle Fatalities," NBER Working Papers 1914, National Bureau of Economic Research, Inc.
    4. John DiNardo & Thomas Lemieux, 1992. "Alcohol, Marijuana, and American Youth: The Unintended Effects of Government Regulation," NBER Working Papers 4212, National Bureau of Economic Research, Inc.
    5. Coate, Douglas & Grossman, Michael, 1988. "Effects of Alcoholic Beverage Prices and Legal Drinking Ages on Youth Alcohol Use," Journal of Law and Economics, University of Chicago Press, vol. 31(1), pages 145-171, April.
    6. repec:aph:ajpbhl:1984:74:7:668-672_1 is not listed on IDEAS
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    Cited by:

    1. Angel Asensio & Dany Lang & Sébastien Charles, 2012. "Post Keynesian modeling: where are we, and where are we going to?," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 34(3), pages 393-412.

    More about this item


    AS AD; Macroeconomics; Supply;

    JEL classification:

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


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