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Cambridge Journal of Economics Advance Access originally published online on November 8, 2006
Cambridge Journal of Economics 2007 31(3):413-422; doi:10.1093/cje/bel027
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Right arrow E00 - General
Right arrow E12 - Keynes; Keynesian; Post-Keynesian
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© The Author 2006. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

The nature of the ADAS model based on the ISLM model

B Bhaskara Rao*

* University of the South Pacific

Address for correspondence: University of the South Pacific, Suva, Fiji; email: raob{at}connect.com.fj

The aggregate demand and supply model (ADAS) is interpreted as a synthesis of the Keynesian and neoclassical models. It uses the ISLM model, without explaining its nature, to derive aggregate demand (AD). It is combined with an aggregate supply (AS) curve to explain price-inflation and output dynamics. This paper argues that neither the AD nor the AS curve is conceptually the same as its microeconomic counterpart and that ADAS is not a synthesis. In fact, ADAS implies that discretionary policy is necessary and that price changes do not perform their traditional negative feedback function.

Key Words: Keynesian and neoclassical models • Aggregate demand and supply • Monetary policy rule • Price adjustments • Stabilization policy

JEL classifications: E0, E41, E52

Manuscript received September 9, 2005; final version received May 12, 2006.


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