The Theory of Temporary Equilibrium and the Keynesian Model

IS-LM curve analysis3; nowhere can you find the conventional aggregate demand curve relating commodity demand to the price level, and typically not even the transactions demand function for money has been retained 4. Besides the difference in the formal structure between the ex-tended Keynesian model and the new disequilibrium approaches, there is a difference in the emphasis placed on the microeconomic foundation of the behavioural equations. Whereas in Keynesian theory these equations tend to be rather ad hoc, in modern disequi-librium approaches they typically are derived from microeconomic optimization problems. So one might be tempted to believe that the optimization procedure is the source of the structural differences pointed out above. The present paper, however, casts considerable doubt on the validity of such a supposition. On the following pages we shall derive a macroeconomic mode