33 Deeper Assumptions (Micro-economic Foundations) •Firms have some ability to set prices (not perfectly competitive world) •Firms face some cost to changing prices – these are called menu costsIn the long-run: •Sustained changes in demand will eventually lead firms to change their prices and cause production to return to normal capacity.
34 Non-Keynesian View of the World •There will never be excess production because firms will cut prices to sell it. •There will never be persistent unemployment because workers will cut their wages to keep and get jobs. •Fluctuations in demand will be accommodated by flexible prices and wages without changes in output and employment
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