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Bridging the Gap between the Interest Rate and Price Level Approaches in the AD-AS Model: The Role of the Loanable Funds Market

Author

Listed:
  • T. Windsor Fields

    (James Madison University)

  • William R. Hart

    () (Department of Economies, Miami University, Ohio)

Abstract

There are two generally accepted ways of plotting the aggregate demand (AD) and aggregate supply (AS) curves in the goods market. One puts the price level on the vertical axis (the P - y approach); the other plots the real interest rate on the vertical axis (the r - y approach). This paper develops the theoretical connections between these two approaches that permit one to tell a coherent dynamic story with the AD-AS model and also explores the conditions under which one approach or the other yields greater insight into the working of the model.

Suggested Citation

  • T. Windsor Fields & William R. Hart, 2003. "Bridging the Gap between the Interest Rate and Price Level Approaches in the AD-AS Model: The Role of the Loanable Funds Market," Eastern Economic Journal, Eastern Economic Association, vol. 29(3), pages 377-390, Summer.
  • Handle: RePEc:eej:eeconj:v:29:y:2003:i:3:p:377-390
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    File URL: http://web.holycross.edu/RePEc/eej/Archive/Volume29/V29N3P377_390.pdf
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    References listed on IDEAS

    as
    1. Grossman, Herschel I., 1969. "Theories of markets without recontracting," Journal of Economic Theory, Elsevier, vol. 1(4), pages 476-479, December.
    2. S. Kirk Elwood & T. Windsor Fields, 1998. "Does the International Substitution Effect Help Explain the Slope of the Aggregate Demand Curve?," The Journal of Economic Education, Taylor & Francis Journals, vol. 29(4), pages 358-364, January.
    3. Ferguson, J David & Hart, William R, 1980. "Liquidity Preference or Loanable Funds: Interest Rate Determination in Market Disequilibrium," Oxford Economic Papers, Oxford University Press, vol. 32(1), pages 57-70, March.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Interest Rates; Interest; Price Level; Prices; Supply;

    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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