Keynes's Treatise: Aggregate Price Theory for Modern Analysis?

Central European University Working Paper No.10/2000

Posted: 6 Feb 2001

See all articles by Max Gillman

Max Gillman

Central European University (CEU) - Department of Economics

Date Written: Year 2000

Abstract

The paper explores the theory of aggregate price, profit, and business fluctuations in Keynes's Treatise for its implications for modern macroeconomic analysis. As in the Treatise, profits are first defined within a theory of the aggregate price level as aggregate investment minus saving. Deriving aggregate total revenue and aggregate total cost from this price theory, the paper shows how to construct a version of the Keynesian cross diagram. The cross construction suggests an important qualification for fiscal policy, that total cost does not shift.Then, using a neoclassical definition of profit and the total-cost/total-revenue approach, the paper derives aggregate supply. The derivation of neoclassical aggregate demand is added. Comparative statics of the AS-AD analysis and the central role of profit in the Treatise suggest that a focus on profit might be useful in identifying exogenous technology shocks of real business cycle theory.

Keywords: Price, Revenue, Cost, Cross, Profit, AS-AD, Cycles

JEL Classification: E12, E13, B2, A22

Suggested Citation

Gillman, Max, Keynes's Treatise: Aggregate Price Theory for Modern Analysis? (Year 2000). Central European University Working Paper No.10/2000, Available at SSRN: https://ssrn.com/abstract=253954

Max Gillman (Contact Author)

Central European University (CEU) - Department of Economics ( email )

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