Procrustean Art of Backtracking: “AD Curve, the Bernanke Style”
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...