doi: 10.1111/j.1742-7363.2007.00069.x Aggregate demand and supply

This paper is part of a broader project that provides a microfoundation to the General Theory of J. M. Keynes. I call this project “old Keynesian economics ” to distinguish it from new-Keynesian economics, a theory that is based on the idea that to make sense of Keynes we must assume that prices are sticky. I describe a multi-good model in which I interpret the definitions of aggregate demand and supply found in the General Theory through the lens of a search theory of the labor market. I argue that Keynes ’ aggregate supply curve can be interpreted as the aggregate of a set of first-order conditions for the optimal choice of labor and, using this interpretation, I reintroduce a diagram that was central to the textbook teaching of Keynesian economics in the immediate post-war period