Answer to Question #73712 in Macroeconomics for Pratik tiwari

Question

What is price rigidity in short with exam write

Answer 1

The rigidity of prices is facilitated by: a significant part of the labor force employed part-time or non-permanent, international labor migration, as well as the mobile share of voluntarily unemployed people, which, with the expansion of aggregate demand, is part of the labor force. Even in full employment, the number of these categories of potential workforce remains significant. The reasons for the existence of labor reserves are the tightening of wages, discrimination in employment and the imperfection of employment statistics. The simultaneous availability of capital and labor reserves further exacerbates short-term price rigidity and the flexibility of aggregate output, since it allows for proportional increases in labor and capital with a temporary expansion of production without increasing unit costs.