- Subject index
Macroeconomics Simplified explains the intuition behind Keynesian and neoclassical macroeconomics using graphs and simple algebra.
It provides students with a strong conceptual basis for understanding the tension between Keynesian and neoclassical systems that has once again came to the forefront since the 2007–08 financial crisis.
The book shows how theoretical perspectives affect macroeconomic policy choices and proposes a pragmatic approach to policy that is sensitive to prevailing economic conditions. Students of economics and business alike will enjoy its concise and engaging analysis and find the applications and references to the Indian economy helpful.
Chapter 8: The Aggregate Supply and Demand Model
The Aggregate Supply and Demand Model
A closed-economy three-sector aggregate supply (AS) aggregate demand (AD) model can be generated by adding the labour market to the IS-LM model (which is summarised in the AD curve). It is a synthesis model in that it incorporates both price and output adjustment processes. Like the IS-LM model, it comes in Keynesian and neoclassical versions.
The Keynesian less than full-employment equilibrium is modelled in the AS-AD framework in terms of labour market failure. Keynesian economics is boiled down in this model to the ‘special case’ scenario associated with the failure of wages to adjust to market-clearing levels. This three-sector treatment of Keynesianism has come to be known as the ‘neoclassical synthesis’ in part because it ...