Answer to Question #286043 in Macroeconomics for Sheya

Question

A key feature of a macroeconomic model is whether it assumes that prices are flexible or sticky. According to most macroeconomists, models with flexible prices describe the economy in the long run, whereas models with sticky prices offer a better description of the economy in the short run. Which one of thoughts discussed above do you support? Why? Support your answer with evidence.

Answer 1

I support models with flexible prices because flexible prices are more susceptible to change as they adapt to market conditions while sticky prices are often triggered by an impediment or a change in cost and cannot fluctuate easily.Because of this flexibility, there isn’t a long-run trade-off between inflation and output.