Nominal rigidities versus real rigidities, Managerial Economics

NOMINAL RIGIDITIES VERSUS REAL RIGIDITIES  

Nominal rigidities are said to exist when nominal prices and wages  do  not change in  the  face  of  conditions that call for their change. As  you  have seen  in  earlier units,  this  will lead  to  Keynesian unemployment. But unemployment can also come about because of certain real rigidities in  the  economy.  Such  rigidities  can  exist in  the  goods market,  the labour market or even the market for credit. 

There could exist reasons why  the real wage paid  in the labour market  is higher than the market-clearing wage. This will, of course, lead  to unemployment of  some of those who are willing  to work  at a lower (market-clearing) wage. We are not talking here about the nominal wage not changing when it needs to change, but about firms rationally and voluntarily deciding to pay higher real wages to their workforce because they find it to their advantage  in  some way. We will  explain  this  concept  of  real rigidities  better when we list out all such rigidities in Section 15.5 and the sub-sections therein. The New Keynesian economists stress both  the nominal and real rigidities  to explain the presence  of booms  and  bust/  persistent unemployment in the real world.   

Posted Date: 10/26/2012 6:33:40 AM | Location : United States







Related Discussions:- Nominal rigidities versus real rigidities, Assignment Help, Ask Question on Nominal rigidities versus real rigidities, Get Answer, Expert's Help, Nominal rigidities versus real rigidities Discussions

Write discussion on Nominal rigidities versus real rigidities
Your posts are moderated
Related Questions
show how scarcity and opportunity cost are useful in decisionmaking

1. The price of a U. S. produced hammer is $5. The exchange rate with Malaysia is 3 Ringgit/1$. What is the current price of the hammer in Malaysia? (Assume no transportation cost.

Tastes of the buyer must not alter Any alteration which takes place in the taste of consumers will in all probability thwart the working of the law of demand. It frequently hap

a. Explain why the demand for a particular brand is more elastic than the demand for all cigarettes. If Lucky Strike raised its price by 1% in 1918, was the price elast

Planned Economy Is a system where all major economic decisions are made by a government ministry or planning organisation. Here all questions about the allocation of resources

Meaning The word inflation has at least four meanings. A persistent rise in the general level of prices, or alternatively a persistent falls in the value of money.

(Only for extra credit) Consider Freddy on a rainy Thursday afternoon after losing in his favorite video game. His friend Tommy comes over to cheer him up and offers him the follow

Resource allocation in a free enterprise Although there are no central committees organising the allocation of resources, there is supposed to be no chaos but order. The major

If a firm's organisational characteristics have not any implications for its behaviour or more possibly have implications that can be taken into account without adopting a behaviou

Occurrence of Stagflation Two possible theoretical explanations can be given for the occurrence of stagflation almost all over the world. The first explanation follows directly