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

1901 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

The price of a banana has increased from £0.10 to £0.20. As a result quantity demanded of apples increased from 2.4 million units to 3.6 million units. Calculate the cross price elasticity of demand and interpret the value..


What is the impact of a price ceiling on a market equilibrium?


Explain what is meant when it is said that there are inefficiencies in the production of goods and the allocation of resources.


Explain, using a diagram, the effects of the monopolisation of a perfectly competitive market.


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