Sticky price model.(kindly check description)

Although sticky price model emphasises on goods market but we can also find impact on labour market also. As prices are fixed , so a fall in aggregate demand implies fall in real wage rate which ultimately reduces demand for labour. Reduction in demand for labour also reduces output level.So, a cyclical behaviour is obtained as labour reduces , employment,output also reduces in the same direction and vice versa happens when aggregate demand increases.

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