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What are "sticky prices" and why are they a problem?

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GinnyAnswer

Final answer:

Sticky prices are prices that do not adjust quickly to market changes, causing issues during economic downturns by impacting production, employment, and recession severity.


Explanation:

Sticky prices refer to prices that do not quickly adjust to changes in supply and demand, often due to factors like nominal wage stickiness, adjustment costs, and the pre-existing price level. This can be problematic during economic downturns because when prices and wages are sticky, firms may not easily lower prices or wages, leading to reduced production, increased unemployment, and worsening recessions.


Learn more about Sticky prices here:

https://brainly.com/question/43208976


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