Keynesian Theory and AS/AD Analysis

This paper uses the AS/AD framework to illustrate competing approaches to (i) the dynamics of short run price-output adjustment, and (ii) the employment effects of nominal wage reductions. Nominal wages affect equilibrium outcomes if AD is subject to Pigou or Fisher debt effects. The Kaleckian model represents a variation on the neo-Keynesian model. Its principal contribution concerns the AD effects of the functional distribution of income, which introduces the mark-up as an important independent variable and focuses attention on capital-labor conflict.