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

Windsor Fields and William Hart ()
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Windsor Fields: James Madison University
William Hart: Department of Economies, Miami University, Ohio

Eastern Economic Journal, 2003, vol. 29, issue 3, 377-390

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.

Keywords: Interest Rates; Interest; Price Level; Prices; Supply (search for similar items in EconPapers)
JEL-codes: E1 E31 E43 (search for similar items in EconPapers)
Date: 2003
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Persistent link: https://EconPapers.repec.org/RePEc:eej:eeconj:v:29:y:2003:i:3:p:377-390

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