Fred Foldvary writes: The AD-AS model "has pedagogic value for understanding 
the relationships among the money supply, output, and the price level, along 
with the effects of demand-side and supply-side policies ... The aggregate 
demand is most simply the total demand for goods (y) given some supply of 
money, as a function of the price level.  Given some fixed MV (money times 
velocity), lower price levels increase the purchasing power of money and thus 
the aggregate quantity demanded of goods is greater.  Hence the downward 
sloping AD."


But since we also teach students that there is an empirical relationship (some 
between of a causal kind, reverse or otherwise) between the supply of money and 
prices, how can we legitimately hold the money supply constant and pick - out of 
thin air - abstract gravity defying values of the price level (to derive an AD 
curve)?
 
Robert Leeson