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Macroeconomics
Price-wage rigidity is a condition whereby prices and level of wages fail to change despite changes in the economy. The longer it takes for salary or price to adjust the more rigid it is. According to Keynesian’s argument, price-wage inflexibility cannot offset itself without government intervention.
I agree with Keynes that the government ought to be involved in a market experiencing wage and price rigidities. When the economy in recession supply of labor exceeds its demand, it is calling for a cut in payments. In such a situation the government moves in and deploys its fiscal policy strategies (Pettinger n.pag). It may decide to increase the supply of money in the economy to increase demand for goods. The government might increase its spending, and in so doing more money will be availed in the marketplace. With an increase in funds, the economy shifts to a boom, bringing the demand and supply of labor in balance.
Otherwise, if the government fails to intervene, Keynes argues that the inflexibility of wages causes involuntary unemployment in the long run (Worstall n.pag). Involuntary unemployment is whereby the salary paid it too little to the extent that people prefer not to work despite the existence of job opportunities. Such a problem pushes the economy backward as people will have less money hence demand fewer goods.
In the case of price rigidity, the demand for goods exceeds the supply, and the government…