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David Ricardo
David Ricardo

... capital is simply equal to the amount of labor that was used to produce that capital good. For example, if a machine has 10 hours of labor imbedded in it, and if it has a useful life of 5 years, then each year 2 units of labor will be expended as machine is used up. Therefore, capital is simply conv ...
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... Beginning in the 1980s, some economists, including Nobel laureates Finn Kydland of Carnegie Mellon University and Edward Prescott of Arizona State University, argued that Lucas was correct in assuming that workers and firms formed their expectations rationally and that wages and prices adjust quickl ...
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... houses cooler, burning more wood." Instead of hitting the malls, people are staying home and making do with what they have. 4. Give an example of a shifting demand curve and an example of a movement along a demand curve mentioned in the article. Demonstrate graphically. The winter of 2000-2001 is ma ...
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... Inflation does not create a situation where incomes lag behind prices: it may be the case that there are increases in wages that lead to price increases. Inflation once begun does not have to be a permanent fixture (think about the inflation of the late 1970s and early 1980s in the U.S.). Since the ...
Class 21
Class 21

... Jan-09 ...
< 1 ... 140 141 142 143 144 145 146 147 148 ... 278 >

Nominal rigidity

Nominal rigidity, also known as price-stickiness or wage-stickiness, describes a situation in which the nominal price is resistant to change. Complete nominal rigidity occurs when a price is fixed in nominal terms for a relevant period of time. For example, the price of a particular good might be fixed at $10 per unit for a year. Partial nominal rigidity occurs when a price may vary in nominal terms, but not as much as it would if perfectly flexible. For example, in a regulated market there might be limits to how much a price can change in a given year.If we look at the whole economy, some prices might be very flexible and others rigid. This will lead to the aggregate price level (which we can think of as an average of the individual prices) becoming ""sluggish"" or ""sticky"" in the sense that it does not respond to macroeconomic shocks as much as it would if all prices were flexible. The same idea can apply to nominal wages. The presence of nominal rigidity is animportant part of macroeconomic theory since it can explain why markets might not reach equilibrium in the short run or even possibly the long-run. In his The General Theory of Employment, Interest and Money, John Maynard Keynes argued that nominal wages display downward rigidity, in the sense that workers are reluctant to accept cuts in nominal wages. This can lead to involuntary unemployment as it takes time for wages to adjust to equilibrium, a situation he thought applied to the Great Depression that he sought to understand.
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