If prices are sticky, output in an economy will be mostly determined by the level of demand.

Question

Quizplus · Accepted Answer

If prices are sticky, they do not adjust quickly to changes in demand. As a result, changes in demand will lead to changes in output because firms will not be able to increase prices to match increased demand, and they will not decrease prices to match decreased demand. Therefore, output will mostly be determined by the level of demand.

If Prices Are Sticky, Output in an Economy Will Be