Critical Notes on Aggregate Demand Curve

Abstract

Abstract: The "well behaved� (negatively sloped) aggregate demand curve is the basis for the consensus in neoclassical macroeconomics which claims that there are no effective demand constraints in the long run. The objective of these notes is to systematise the critique of the theoretical presuppositions behind the traditional aggregate demand curve. Analysing the main obstacles to the operation of both the Keynes and Pigou effects , we show that there are no good reasons to expect that the flexibility of prices and nominal wages would automatically eliminate by themselves aggregate demand constraints, neither in closed nor in open economies.