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

1719 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

What impact would a cut in the base rate by the Bank of England have on Aggregate Demand?


What is a market equilibrium? Describe and explain an equilibrium graphically


How would I structure a 25 mark essay?


Assess the extent to which a depreciation of the Pound will positively effect economic performance within the Uk.


We're here to help

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

© MyTutorWeb Ltd 2013–2025

Terms & Conditions|Privacy Policy
Cookie Preferences