What is a simple definition of Keynes' sticky prices theory?

In a downturn, it is easy for households, and firms to reduce spending, but difficult for suppliers to reduce prices. A big input that drives this is wages. It is very hard to negotiate wages downward in a depression/deflationary situation. Since prices can't fall to meet lower demand, the market can't correct itself out of the depression. This is why most economists view moderate positive inflation as more desirable than perfect price stability.

SS
Answered by Shivani S. Economics tutor

2021 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

What is protectionism?


In an economy consumption=50, investment=60, government spending=160, imports=60 and exports=40. What is the aggregate demand of the economy


Why does the demand curve face downwards?


Evaluate the view that a depreciation of a nations currency, will always be a benefit to it's economy.


We're here to help

contact us iconContact ustelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

MyTutor is part of the IXL family of brands:

© 2026 by IXL Learning