Making sense of the aggregate demand-supply model

Bhaduri, Amit; Laski, Kazimierz; Riese, Martin; Bhaduri, Amit; Laski, Kazimierz; Riese, Martin

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Investigación económica

Print version ISSN 0185-1667

Inv. Econ vol.63 n.243 Ciudad de México Jan./Mar. 2003

Artículos

Making sense of the aggregate demand-supply model

Una interpretación del modelo de oferta y demanda agregada

Amit Bhaduri^*

Kazimierz Laski^**

Martin Riese^***

^{^*} Profesor at Jawaharlal Nehru University, New Delhi, India and research associate with WIIW. E-mail: Lisboaabhaduri@hotmail.com

^{^**} Emeritus profesor at Johannes Kepler University, Linz, Austria, and research associate with WIIW.

^{^***} Associate profesor at Johannes Kepler University, Linz, Austria.

Abstract:

The central purpose of the paper is to highlight the logical inconsistency of the traditional Aggregate Demand-Aggregate Supply model, and to the so-called Keynesian comparative static results derived from it, which leads to inconsistent results when applied to out of equilibrium situations. The reason, the authors argue, is that in partial-equilibrium analysis households are distantly considered from firms, so that in aggregate demand-supply analysis such separation becomes untenable because firms are not only producers but providers of employment to households as well. The paper offers a further insight in the sequential dynamics of the General Theory, which lies behind this circularity of the income-expenditure flow and restates some of Kalecki’s and Keynes assertions after discussing two probable routes to solve this perceived inconsistency.

Resumen:

Tal y como se reconoce, el propósito central de este artículo es señalar la inconsistencia presente en los modelos de oferta y demanda agregada, y las interpretaciones en estática comparativa que se hacen de la teoría Keynesiana. La razón es que ambas construcciones conllevan interpretaciones inconsistentes cuando se aplican a situaciones fuera de equilibrio. La razón reside en el hecho de que tal y como son derivados estos modelos, consideran a los hogares en forma separada de las firmas o empresas a pesar de que éstas proveen de empleo (y de ingreso) a los primeros. Esto, a su vez, deviene de la circularidad del flujo de ingreso y gasto en la economía, y es precisamente este característica la que el artículo analiza, al amparo de las ideas de Keynes y Kalecki. De esta forma, el documento señala dos posibles rutas para resolver esta inconsistencia.

JEL Classification: A0l, B41, E12, E13.

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Received: July 2002; Accepted: October 2002

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