What is a simple definition of Keynes' sticky prices theory?

In a downturn, it is easy for households, and firms to reduce spending, but difficult for suppliers to reduce prices. A big input that drives this is wages. It is very hard to negotiate wages downward in a depression/deflationary situation. Since prices can't fall to meet lower demand, the market can't correct itself out of the depression. This is why most economists view moderate positive inflation as more desirable than perfect price stability.

SS
Answered by Shivani S. Economics tutor

1761 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

Please can you help me to understand the concept of price elasticity of demand (PED)?


What are the objectives of a firm?


Analyse how barrier to entry determine the degree of competition in the British transport market.


What would be effect on the price of oil due to an increase in cars used in the UK


We're here to help

contact us iconContact ustelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

MyTutor is part of the IXL family of brands:

© 2025 by IXL Learning