A Keynesian Model of Aggregate Demand and Supply

Jose Encarnacion

No 199703, UP School of Economics Discussion Papers from University of the Philippines School of Economics

Abstract: This paper defines an aggregate demand function based on portfolio balance with three assets (money, bond and equities) and an aggregate supply function derived from the supply behavior of a representative price-setting firm. The money wage is endogenous but the usual result is a short-period unemployment equilibrium. The model povides explanations of Phillips curve, stagflation and procyclical real wage phenomena. It also allows a continuum of full-employment equilibria.

Date: 1997-03
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Published as UPSE Discussion Paper No. 1997-03, March 1997

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