Aggregate demand and supply

Roger Farmer

International Journal of Economic Theory, 2008, vol. 4, issue 1, 77-93

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.

Date: 2008
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Citations: View citations in EconPapers (30)

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https://doi.org/10.1111/j.1742-7363.2007.00069.x

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Working Paper: Aggregate Demand and Supply (2007)
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