The Chimera of Macroeconomics

  Opening any textbook, we come across the AS-AD model. The framework has the price level ( P ) on the ordinate (the y axis) and the “real” GDP ( Y= Y N / P , where Y N supposedly for this year’s “nominal” GDP) on the abscissa (the axis of x ).              First of all, there is a great technical problem that the abscissa ( Y N / P ) is defined to be a function of ordinate ( P ). Most macroeconomists, not to mention the rest of us, would have difficulty traveling in such an unusual coordinate system.             Second of all, with the stock of money ( M* ) and the velocity of money ( V* ) “assumed” to be constant in the model as usual “for the sake of convenience,” the rest of us would have a couldn’t-be-simpler equation P ∙ Y ≡ M* ∙ V*= k with k  again “assumed” constant. The relationship is hyperbolic whether called the “AD curve” or the “AS curve.” ...

  Opening any textbook, we come across the AS-AD model . The framework has the price level ( P ) on the ordinate (the y axis) and the real GDP ( Y= Y N / P , where Y N supposedly for this year’s nominal GDP ) on the abscissa (the axis of x ).              First of all, there is a great technical problem that the abscissa ( Y N / P ) is defined to be a function of ordinate ( P ). Most macroeconomists , not to mention the rest of us, would have difficulty traveling in such an unusual coordinate system.              Second of all, with the stock of money ( M ) and the velocity of money ( V ) assumed to be constant in the model as usual “for the sake of convenience,” the rest of us would have a couldn’t-be-simpler equation P ∙ Y ≡ M ∙ V= k with k assumed constant. The relationship is hyperbolic whether called the “AS curve” or the “AD curve.” That’s fro...