Question

Explain sticky prices with reference to nominal and real interest rate

Answer 1

hi
nominal rigidity, also known asprice-stickinessorwage-stickiness, describes a situation in which thenominal priceis 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 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 could
change in a give year.