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
features of monopoly

A company is selling a  particular brand of tea and wishes to introduce a new flavor. How will the company forecast demand for it.

Problem 1: You are the manager of a reputed five star hotel in Mauritius and you have been asked by the director of the hotel to advise on possible pricing strategies to increa

The Market Demand Curve Quantity of a commodity that an individual is willing to buy at a particular price of the commodity during a specific time period, given his money incom

The concept of isocost In the use of resources, firms are faced with opportunity cost.  For every addition of say capital, they must forego a unit of say labour. Expositio

Q. Types of Market Structures by the Nature of Competition? Conventionally, the nature of competition is assayed to be the basic criterion for distinguishing different types of

Calculate point elasticity of demand for demand function Q=10-2p for decrease in price from Rs 3 to Rs 2

how manager can apply scarcity and oppotunity cost in managerial decision making

Advantages of Planned System i)   Uses of resources :  Central planning can lead to the full use of all the factors of production, so reducing or ending unemployment. ii

The Multiplier In his theory Keynes asserted that consumption is a function of income, and so it follows that a change in investment, which we may call ΔI, meaning an incremen