Answer to Question #286617 in Macroeconomics for Mula

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

Sticky prices don't always adjust quickly enough to keep the amount supplied and quantity demanded equal. Prices and wages are "sticky," in my opinion, meaning they change more slowly to short-term economic swings. As a result, economic factors such as involuntary unemployment and the impact of government monetary policy are explained using this principle.