What is Sticky Prices?
Here is a revision sheet showing the Sticky Price Model in equilibrium. It demonstrates how a demand-derived economy determines how much labour is needed using only the interest rate and Output Supply (IS) Curve.
Here we assume that the Central Bank fixes the interest rate
What if Monetary Policy fixes the money supply instead?
Then we use the IS LM Model
What if prices are not sticky??
Compare the Keynesian Sticky Price Model to the Dynamic Macroeconomic Model with flexible prices