Describe the empirical research on the stickiness of prices. Given some doubt on how sticky prices are, why is it nevertheless useful for the Keynesian model to assume that prices are sticky, especially when analyzing monetary policy?
What will be an ideal response?
Carlton showed that price stickiness is greater, the less competitive is the industry. Blinder and his students found a high degree of price stickiness, though Kashyap's results suggested that the stickiness may not arise because of menu costs. A more comprehensive study by Bils and Klenow found much less price stickiness that earlier; though Nakamura and Steinsson showed that some of the Bils—Klenow result came from failure to account for sales. Boivin—Giannoni—Mihov found that prices are not sticky in response to supply or demand shocks in an industry, but they are sticky in the face of shocks to monetary policy. So, the price stickiness assumption is useful when analyzing monetary policy and other aggregate shocks.
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In the long run, the economic profits for a monopolistically competitive firm will be
A. slightly more than the profits of a purely competitive firm. B. the same as the profits for a purely competitive firm. C. the same as the profits for a monopolist. D. slightly less than the profits of a monopolist.
Which of the following questions is a macroeconomic issue?
A) How many more pounds of cookies will a consumer purchase if the price of cookies decreases? B) What effect would a cure for Mad Cow Disease have on the market for beef? C) What is the future growth prospect for an economy? D) How many workers should the owner of a business hire?
Rio Tinto's incentive to adopt new robotic technology was increased by the high wages it was having to pay to attract miners and truck drivers. In this instance, Rio Tinto began using new robotic technology to
A) substitute labor for capital in production. B) add labor as a complementary resource for its capital. C) add capital as a complementary resource for its labor. D) substitute capital for labor in production.
Under perfect competition, the lure of profits makes producers try to equate marginal cost and price
a. True b. False Indicate whether the statement is true or false