The Aggregate-Supply/Aggregate-Demand Model

Robert Barro

Eastern Economic Journal, 1994, vol. 20, issue 1, 1-6

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.

Keywords: AS AD; IS LM Model; Supply (search for similar items in EconPapers)
JEL-codes: E12 (search for similar items in EconPapers)
Date: 1994
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Citations: View citations in EconPapers (6)

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