Answer to Question #269350 in Macroeconomics for Anonymous

Question

Why price and wages are fixed or remain constant or sticky in Keynesian cross model ????

Answer 1

Wages may be sticky in the fixed-price Keynesian model due to institutional limitations such as minimum wage laws or union contracts.

These include the notions that workers are far more ready to accept pay hikes than pay cuts, that some workers are union members with long-term contracts, and that a corporation may not want to be linked with the negative headlines that salary cutbacks bring.