ABSTRACT
Models of AD–AS growth, such as the one in Sargent (1987, ch. 5), allow only for one type of disequilibrium, in the labor market, which is interpreted as being due to the assumed sluggish wage adjustment based on a conventional augmented money wage Phillips curve. The goods market is in equilibrium in a twofold way. Firms are on their supply or AS curve, operating at the desired level of capacity utilization. There is Keynesian goods and money market (or AD) equilibrium, since the price level, which is completely flexible, adjusts such that the Keynesian regime or quantity constraint becomes compatible with the profit-maximizing choice of output of firms, but not compatible with labor market equilibrium. There has been an extensive discussion in the recent literature whether this is a sensible scenario for describing a Keynesian rationing of firms on the market for goods – see Chiarella et al. (2000b, sec. 7.10) for a brief survey.
