Adjustment of Wages and Prices in Macroeconomy
How quickly do wages and prices adjust in the Macroeconomic environment?
Written by Jason Gordon
Updated at March 28th, 2023
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How quickly do wages and prices adjust in the Macroeconomic environment?
How long does it take for wages and prices to adjust, and for the economy to rebound to its potential GDP? This subject is highly contentious. Keynesian economists argue that if the adjustment from recession to potential GDP takes a very long time, then neoclassical theory may be more hypothetical than practical. In response to John Maynard Keynes' immortal words, “In the long run we are all dead,” neoclassical economists respond that even if the adjustment takes as long as, say, ten years the neoclassical perspective remains of central importance in understanding the economy.
Back to: ECONOMIC ANALYSIS & MONETARY POLICY
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