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
Disadvantages of Mixed Economy Large monopolies can still exist in the private sector, and so competition does not really take place There is likely to be a lot of bureaucr

managerial principles to consider when determining level of output of afirm

Prediction markets:   These are speculative markets fashioned with the intention of making predictions. Assets which are produced possess an ultimate cash worth bound to a specific

Equilibrium and Disequilibrium in the Balance of Payments If on the current account , the value of exports is equal to the value of imports, the balance of payments is said t

KEYNESIAN AND NEW-KEYNESIAN THEORIES OF UNEMPLOYMENT AND THE BEHAVIOUR OF REAL WAGES    As  mentioned  above, two  phenomena  about the  labour market  need  to  be explained:

How do I do a log linear regression in excel

Air Canada and KLM compete for customers on flights among Amsterdam and Toronto. The total number of passengers (Q) flown by these two firms is the sum of passengers who fly KLM, Q

Limitations of Open Market OperationsLimitations For their success central bank open market operation assume that commercial banks in the country will expand their credit port

Question 1: (a) How do economists go about studying the economics of the public sector? Describe the four stages of analysis. (b) What are the main reasons explaining syst

Question: EITHER Nowadays, there is an urgency in Mauritius to introduce a rapid transit system in order to reduce traffic congestion and shift towards a more efficient mode