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

2103 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

List and explain some ways in which a monopolistic firm can use it's lower costs as a barrier to entry.


What is the affect of expansionary fiscal policy on the economy?


Explain price elasticity of demand


Using a demand and supply diagram, explain how an increase in taxes on domestic fuel will affect the domestic fuel 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:

© 2026 by IXL Learning