Price Rigidity Requires Government
Classical economists’ belief that prices and quantities adjust to the changes in the forces of supply and demand and that the economy produces its potential output in the long run. On the contrary, Keynesian economists believe because of price and wage rigidities the economy’s equilibrium output in the long run may be less than its potential output. What is price-wage rigidity? Do you agree with Keynes assessment that wage-price rigidity requires government’s involvement in the markets? Why? Why not?