The author explores the problems of portraying oil-price shocks using the aggregate demand/aggregate supply model. Although oil-price shocks are the most commonly cited examples of aggregate supply shocks, they violate the model’s assumption of constant relative prices (as acknowledged by...

<title>Abstract</title> The author explores the problems of portraying oil-price shocks using the aggregate demand/aggregate supply model. Although oil-price shocks are the most commonly cited examples of aggregate supply shocks, they violate the model's assumption of constant relative prices (as acknowledged...

The author argues that the aggregate demand/aggregate supply (AD/AS) model is significantly improved—although certainly not perfected—by trimming it of the short-run aggregate supply (SRAS) curve. Problems with the SRAS curve are shown first for the AD/AS model that casts the AD curve as...