Doc Merlin. I define AD as NGDP–so that is something definite.

]]>There is no aggregate demand as a scalar quantity. At least not one that makes any sense.

You cannot aggregate demand into a scalar quantity due to Arrow’s Impossibility theorem and Simpson’s Paradox and have it make much sense. I prefer to think of aggregate demand and supply as vector valued functions. Where they don’t meet up (wether you think this is from market inefficiencies or government involvement is secondary) you get a separation you can measure by using a cross product.

When we use the standard definitions of AS and AD we implicitly assume

1. that there are no inefficiencies (for example no minimum wage, etc) so AD always meets up with AS.

2. We ignore ignore that when we aggregate we lose the transitive property of preferences.

I propose a better way of thinking about it:

ADxAS=Innefficiency measure, where AS and AD are vector valued functions of quantities for the entire economy.

Now, on the other hand we can talk about demand for money and supply of money, but that doesn’t immediately give us AS and AD, because different goods should have different elasticities wrt to money.

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