Re: the aggregate demand curve

[Allin Cottrell <cottrell@xxxxxxxxxxxxxxxxx>]

On Fri, 11 Mar 1994 GSKILLMAN@xxxxxxxxxxxx wrote:

> The price level is taken as exogenous in defining the LM, and by
> extension, in deriving the AD curve, so the question translates as
> follows:  is there any way to explain a shift in the price level
> that does not presuppose a change in the money supply?
>
> The answer is yes, from an upward shift in (the non-vertical section
> of) the aggregate supply curve, due say to some "supply shock" like
> the OPEC price increases of the early '70s.

Or from a shift of the AD curve for reasons other than monetary
expansion as such: fiscal policy or swings in private-sector
investment demand.  In AD/AS models, this will cause a temporary
departure from potential gnp, which will in turn cause a change in
inflation relative to money growth.  Integrated over time, this
amounts to a change in the price level.

==========================
Allin Cottrell
Department of Economics
Wake Forest University
cottrell@xxxxxxxxxxxxxxxxx
(910) 759-5762
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