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

Objectives of icas, Objectives of ICAs Most schemes have as their main...

Objectives of ICAs Most schemes have as their main objective to stabilize and/or increase the world price of commodity, producers' incomes, foreign exchange earnings of export

Decision making, Explain how managerial economics is useful for decision ma...

Explain how managerial economics is useful for decision making

Objectives of demand forecast, Drafting of Production Policy: Demand forec...

Drafting of Production Policy: Demand forecasts assists in drafting appropriate production policy so that there may not be any space between future demand and supply of a product.

Predicting the stock market, In this question you will consider the impact ...

In this question you will consider the impact on the building industry of the earthquake. Two construction and materials indices have been provided for the analysis.  If your famil

Factors influencing demand for a product, Factors influencing demand for a ...

Factors influencing demand for a product These are broadly divided into factors determining household demand and factors affecting market demand . Factors affecting hou

Real rigidities in the labour market, Real Rigidities in the Labour Market ...

Real Rigidities in the Labour Market   New Keynesian  theories of the labour market help in explaining  the existence of involuntary unemployment. The theories also attempt to

Presentation, to give presentation on the topic: shutdown and abandoned cos...

to give presentation on the topic: shutdown and abandoned cost analysis?

Vanda-Laye Corporation, You are the new owner of Vanda-Laye Corporation. Yo...

You are the new owner of Vanda-Laye Corporation. You are interested in your company''s cost and revenue relationships as well as its future pricing strategies. Tasks: Analyze how

Determinants of money supply, DETERMINANTS OF MONEY SUPPLY The total su...

DETERMINANTS OF MONEY SUPPLY The total supply of nominal money in the economy is determined by the joint behaviour of the central bank which controls the total issue of the hig

Optimal input combination for maximisation of output, Q. Optimal Input Comb...

Q. Optimal Input Combination for Maximisation of Output? Equilibrium conditions of the firm are identical to the above situation which is, iso-cost line must be tangent to the

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