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

1816 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

Explain the main barriers that LEDC's face when attempting to achieve stable, long-term growth


Explain the Prisoner's Dilemma


Describe the long run aggregate supply curve.


What is the difference between a merit good and a public good?


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