Answer to Question #286572 in Macroeconomics for Bedilu

Question

A key feature of macro economics model is whether it assumes that prices are flexible or sticky. According to most macro economists,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 described above do you support?why?support your answer with evidence.

Answer 1

Sticky prices do not always adjust rapidly enough to keep supply and demand in balance. Prices and salaries, in my perspective, are "sticky," meaning they respond to short-term economic fluctuations more slowly. As a result, this theory can be used to explain economic phenomena like involuntary unemployment and the impact of government monetary policy.