A New Model for AS-AD Analysis Based on Input-Output Frame

Xinjian Liu

doi:10.4236/me.2011.23026

Abstract

This paper has established a new kind of AS-AD models with input-output techniques. The models take the standard input-output tables as its starting points. We analyze the change effects of government consumption, direct consumption coefficient, labor productivity, and surplus rate on the equilibrium output. In this paper, we propose that the aggregate demand function curve should be right upward, and this lead to a series of inconsistent conclusions with the traditional views. Finally, we also analyze the well-known issue of stagflation.

Highlights

It was pointed out that the input-output (IO) analysis had no longer been included in the core of mainstream economics since the middle of 1980s
We propose that the aggregate demand function curve should be right upward, and this lead to a series of inconsistent conclusions with the traditional views
This paper develops a new Aggregate Supply (AS)-Aggregate Demand (AD) model with a single-sector IO framework and analyses the slopes of new AD and AS functions at first, and explores the impacts of government expenditure, direct consumption coefficient, labor productivity and operating surplus rate on the equilibrium states in the second part

Summary

Introduction

It was pointed out that the input-output (IO) analysis had no longer been included in the core of mainstream economics since the middle of 1980s. IO analysis has obtained a huge developing space in the study of practical economies, it is yet impossible to enter the mainstream economic theory system. This paper develops a new AS-AD model with a single-sector IO framework and analyses the slopes of new AD and AS functions at first, and explores the impacts of government expenditure, direct consumption coefficient, labor productivity and operating surplus rate on the equilibrium states in the second part. It discusses the stagflation issue in a two-sector model in the third part.

C G I NX

The Slope Signs of AD and AS Curves

C Yd dY s dP

The Perturbations of AD and AS

The Explanation of Stagflation Issues

Conclusions