Principles of Macroeconomics / Unit 9 MAC 0803 short lesson, about 20 seconds
Sticky Wages and Sticky Prices
Captions available
The idea
The second building block is that wages and prices adjust slowly. When demand falls, quantities move before prices do, so firms cut production and employment rather than pay and price tags.
In practice
Unit five gave five reasons wages resist falling; this unit adds the coordination problem and menu costs.
Where people slip
Sticky does not mean fixed. It means slow enough that output moves first.
Your place on the trail
Every lesson rests on earlier ones and opens later ones. Tap any to jump.
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