Making Sense of the Aggregate Demand-Supply Model

Amit Bhaduri, Kazimierz Laski and Martin Riese ()

No 5, wiiw Working Papers from The Vienna Institute for International Economic Studies, wiiw

Abstract: This paper questions the validity of using the aggregate demand (AD) and aggregate supply (AS) framework for analysing macroeconomic issues. AD derived from the Keynesian income-expenditure approach cannot be reconciled logically with AS derived from the profit maximization postulate in out-of-equilibrium positions. The paper shows two routes to achieving consistency, either by taking recourse to Kalecki's work or by entirely reformulating the analysis along neo-classical lines. Using these two polar cases, it reinterprets the model underlying Keynes' General Theory and modern disequilibrium analysis based on "rationing".

Keywords: Aggregate demand (AD); aggregate supply (AS); incompatibility of AD/AS; consistent AD/AS reformulations; profit maximization and multiplier analysis; disequilibrium theory and short side of the market (search for similar items in EconPapers)
Pages: 16 pages including 4 Figures
Date: 1995-03
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Citations: View citations in EconPapers (2)

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