Explain how long-term contracts contribute to sticky prices

Reference no: EM13241514

Even though this chapter is all about the classical explanation of business cycles, this innovation in economic theory is thanks to the ideas of John Maynard Keynes. That's why we call it a "Keynesian" supply curve. Professor Keynes argued that the SRAS curve slopes upward because in the short-run prices are not "flexible" like Adam Smith and the classicals assumed, but rather, they were "sticky."

What exactly are "sticky" prices? List and explain the three primary sources for "stickiness" that your textbook mentions. Be specific and make sure to explain how long-term contracts contribute to "sticky" prices.

Reference no: EM13241514

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