- Workers may not be aware of changes in their real wages due to inflation and have adjusted their labor supply decisions and wage demands accordingly
Sticky wages- the nominal wage level is set accordingly to an initial price level and it does not vary
Long-Run AS- time long enough for wages to adjust
- Flexible wage levels and price levels
- Both offset each other
Keynesian- Price Level (fixed), Wage level (fixed), Employment level (flexible), Implications (output depends on changes in employment).
Intermediate- Price Level (flexible), Wage level (fixed), Employment level (flexible), Implications (output depends on changes in price and employment level).
Classical- Price Level (flexible), Wage level (fixed), Employment level (fixed), Implications (output depends solely on the price level).
Demand-Pull Inflation Graph
Cost-Push Inflation Graph
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