Re: Re: Re: Re: intro macro text

[Jim Devine <jdevine@xxxxxxxxxxxxxxx>]

At 02:10 PM 8/30/00 -0400, you wrote:
> I disagree that AS/AD is inherently "anti-Keynesian." For the umpteenth
> time, go look at Chapter 21, Section IV of Keynes's General Theory.

also look at Tobin's ASSET ACCUMULATION AND ECONOMIC ACTIVITY (1980, p.
17). He's got an AD curve with the "wrong" slope, so that falling wages and
prices lead to a _falling_ quantity of real GDP demanded.

If forced to use an AS-AD diagram, one solution is to draw the AD curve as
vertical (making a contrast between the textbook and the real world). This
encourages an emphasis on the AS curve, which should be flat to the left
and then become increasingly steep as the economy moves to higher levels of
real GDP. This is due to bottlenecks, not diminishing returns (something
that NC economists typically don't understand). Again, the textbook vs.
real-world distinction is quite a useful rhetorical strategy, especially
since it has quite a large grain of truth in it. (You can also use this
tactic with the AS curve.) One can teach the "tools" while trying to make
them more realistic.

The vertical AD curve (which becomes upward-sloping in severe depressions)
also allows a clean link between the Keynesian Cross diagram.

Jim Devine jdevine@xxxxxxx &  http://bellarmine.lmu.edu/~jdevine