What question did this study set out to answer?

The aim is to critique the AS/AD model's lack of logical consistency and propose a revised framework.

August 1, 1995The Journal of Economic Perspectives145 citationsOpen Access

The Stories We Tell: A Reconsideration of AS / AD Analysis

Key Points

The aim is to critique the AS/AD model's lack of logical consistency and propose a revised framework.
Evaluates the current AS/AD model's inconsistencies and derivations.
Proposes an alternative model based on Keynesian principles.
Analyzes the relevance of price level vectors in economic adjustments.
Identifies critical flaws in the current AS/AD framework.
Demonstrates that a Keynesian adjustment model aligns better with observed economic realities.
Suggests that institutional factors influence price adjustments rather than traditional AS/AD movements.

Abstract

This paper explains that the AS/AD model as currently presented in the tests is seriously flawed. It does not fulfill the minimum requirement of a model: logical consistency. Its component parts are derived from models that reflect different, and inconsistent, models of the economy. Moreover, the appropriate disequilibrium adjustment story that appropriately accompanies it is inconsistent with observed reality. In this alternative model, Keynesian adjustment occurs through shifting AS/AD curves along institutionally determined price level vectors rather than through movements along the AS/AD curves.

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