Social Sciences and History / Unit 15 SSH 1415 short lesson, about 20 seconds
Sticky Prices as a Macroeconomic Externality
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The idea
Keynesian economics rests on two ideas: aggregate demand usually causes short-run events like recessions, and sticky wages and prices turn a downturn into unemployment. Stickiness is a macroeconomic externality: micro surpluses lower prices; macro adjustment comes through lower quantities.
In practice
Sticky: not falling when demand falls.
Where people slip
The externality is the micro-macro gap.
Your place on the trail
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