In what macroeconomic schools of thought does price stickiness play a role? Is it a bad...

In what macroeconomic schools of thought does price stickiness play a role? Is it a bad thing? Explain why

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Price stickiness works in the Keynesian school of Macroeconomics. Which says that the wages don't change immediately with the change in the prices in the short run, but takes some time to adjust to the new conditions. The main reason for this stickiness is that labors and other variables used in the production have money illusion. They will not allow the nominal wages to fall but really don't care if the real wages fall i.e.the price rises in proportion to their wages.

NO, it's not a bad thing. Money illusion or stickiness of the wages allow the firms to decreases the real wages in case of a price rise and increase the production in the short run. IF there are no sticky wages all variables will adjust quickly and a firm can't increase or decrease production in case of a boom or recession in the market. But, it also causes involuntary unemployment in the job market.

Rahul Sunny answered 1 year ago

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In what macroeconomic schools of thought does price stickiness play a role? Is it a bad...

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