A.K.A. Menu Costs Nominal Price Rigidity, as opposed to Real Price Rigidity, assumes that the person could be fooled into thinking that the price quoted in current money is the same regardless of the real value of the underlying money. For example, if the price level increases by 10% on some basket of goods, Nominal Price Rigidity would suggest that someone would still expect the price on any certian item to remain the same. This is typically used with respect to wages. If everything I bought suddenly cost 10% less, I would feel wealthier no doubt, however if I feel poorer, in this same state of the world, after recieving a simultaneous 5% pay-cut (as the prices fall 10%), then I am suffering from Nominal Price Rigidity. For the firm or the economy at large this effect would make the movem
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| - A.K.A. Menu Costs Nominal Price Rigidity, as opposed to Real Price Rigidity, assumes that the person could be fooled into thinking that the price quoted in current money is the same regardless of the real value of the underlying money. For example, if the price level increases by 10% on some basket of goods, Nominal Price Rigidity would suggest that someone would still expect the price on any certian item to remain the same. This is typically used with respect to wages. If everything I bought suddenly cost 10% less, I would feel wealthier no doubt, however if I feel poorer, in this same state of the world, after recieving a simultaneous 5% pay-cut (as the prices fall 10%), then I am suffering from Nominal Price Rigidity. For the firm or the economy at large this effect would make the movem
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| - A.K.A. Menu Costs Nominal Price Rigidity, as opposed to Real Price Rigidity, assumes that the person could be fooled into thinking that the price quoted in current money is the same regardless of the real value of the underlying money. For example, if the price level increases by 10% on some basket of goods, Nominal Price Rigidity would suggest that someone would still expect the price on any certian item to remain the same. This is typically used with respect to wages. If everything I bought suddenly cost 10% less, I would feel wealthier no doubt, however if I feel poorer, in this same state of the world, after recieving a simultaneous 5% pay-cut (as the prices fall 10%), then I am suffering from Nominal Price Rigidity. For the firm or the economy at large this effect would make the movement of prices a less attractive option and there would be an incentive to change less often. Contrast with Classical Real Balance Effect
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