Nominal rigidities versus real rigidities, Managerial Economics

Assignment Help:

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.   


Related Discussions:- Nominal rigidities versus real rigidities

What do you understand by equilibrium national income, a) What do you unde...

a) What do you understand by equilibrium National Income and to what extent is economic growth beneficial to an economy? b) Explain using both diagrams and mathematical tools,

Types of budgets, TYPES OF BUDGETS 1.     Deficit budget   If th...

TYPES OF BUDGETS 1.     Deficit budget   If the proposed expenditure is greater than the planned revenue from taxation and miscellaneous receipts, this is a budget defic

Marginal cost, Marginal Cost This is the increase in total...

Marginal Cost This is the increase in total cost resulting from the production of an extra unit of output.  Thus, if TC n   is the total cost of producing n

Financial globalization and economic growth, Question 1: Either ‘Tod...

Question 1: Either ‘Today the business organizations are quite different from the traditional classical firm with a wide range of objectives.' Discuss the above statement

Show the fixed proportion production function, Q. Show the Fixed Proportion...

Q. Show the Fixed Proportion Production Function? A fixed proportion production function is one in that technology needs a fixed combination of inputs, say labour and capital,

Production and cost analysis , What is the formula of finding Fixed cost of...

What is the formula of finding Fixed cost of a quadratic function

What is the equilibrium in the labor market, What is the equilibrium in the...

What is the equilibrium in the labor market? Explain briefly. Equilibrium in the Labor Market a. The market labor of demand curve is the horizontal total of the individual l

Features of free market system, Features of Free Market System The fea...

Features of Free Market System The features of a free market system are: (i)         Ownership of Means of Production Individuals are free to own the means of producti

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd