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Aggregate demand and supply
Author(s) -
Farmer Roger E. A.
Publication year - 2008
Publication title -
international journal of economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 11
eISSN - 1742-7363
pISSN - 1742-7355
DOI - 10.1111/j.1742-7363.2007.00069.x
Subject(s) - aggregate supply , economics , aggregate demand , keynesian economics , supply and demand , post keynesian economics , aggregate (composite) , interpretation (philosophy) , effective demand , aggregate behavior , order (exchange) , set (abstract data type) , microeconomics , mathematical economics , neoclassical economics , monetary policy , materials science , finance , computer science , programming language , composite material
This paper is part of a broader project that provides a microfoundation to the General Theory of J. M. Keynes. I call this project “old Keynesian economics” to distinguish it from new‐Keynesian economics, a theory that is based on the idea that to make sense of Keynes we must assume that prices are sticky. I describe a multi‐good model in which I interpret the definitions of aggregate demand and supply found in the General Theory through the lens of a search theory of the labor market. I argue that Keynes' aggregate supply curve can be interpreted as the aggregate of a set of first‐order conditions for the optimal choice of labor and, using this interpretation, I reintroduce a diagram that was central to the textbook teaching of Keynesian economics in the immediate post‐war period.