> perhaps someone could explain how the concepts of aggregate demand, etc., are useful. > Pat Gunning Michel Parkin's text Macroeconomics has an elegant 4-graph model of the macroeconomy, the 4th graph being of aggregate supply and demand (AS and AD), the variable being the usual price level (p) and output (y). 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. A greater MV shifts AD out. If AS is vertical, then greater MV shifts AD up to cross AS at a higher price level, with no change in output. In the Parkin model, output has already been determined by the labor market (graph 1) and the aggregate production function (graph 2, y as a function of labor). The third graph simply transfers y from the vertical to the horizontal axis. Thus the usefulness of graphed AD and AS is to show how the equilibrium price level is set at the intersection of AS and AD, and the effect of shifting AS and AD on the price level and (if AS is not vertical) on y. Of course if you totally reject equilibrium constructs, the model will be of no use to you. But in my judgment, it 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. Fred Foldvary