The logical specification problem concerns defining the AD curve that was derived from the Keynesian model. An appropriate definition of the AD curve derived from the Keynesian model would be as follows: The AD curve is the combination of points at which the Keynesian model is in equilibrium, given the relationship between price level and real output specified in the price-level thought experiment. The standard intro book does not give this definition; instead it gives a definition that parallels the definition of the partial equilibrium demand curve. A typical definition of an AD curve presented in an intro text is the following: Aggregate demand is a schedule, graphically represented as a curve, which shows the various amounts of goods and services that society as a whole will desire to purchase at various price levels, other things being equal. Notice that this definition parallels the definitions of the partial equilibrium demand curve, making appropriate distinctions between relative price and price level and quantity of a good and real output.
This textbook definition is a reasonable one of what the AD curve should be, although it is somewhat vague about what other things are being held constant. Typically, the explanation of what determines the slope of the AD curve, which focuses on the four effects discussed above, clarifies that everything except the direct effect of changes in the price level on output is being held constant.
The problem with this definition and delineation of what determines the slope of the AD curve is that it is not consistent with the derivation of the AD curve from the Keynesian model, because that Keynesian model–derived AD curve does not hold other things constant. The Keynesian model is quite explicitly a model of expenditures and production; it does not hold other things, specifically supply, constant.
--David Colander, “The Stories We Tell: A Reconsideration of AS / AD Analysis,” Journal of Economic Perspectives 9, no. 3 (Summer 1995): 174.
No comments:
Post a Comment