To have an understanding of the world we live in today you have to be aware of what
goes on around us. Our topic, current issues in macro theory and policies, gives you a real
understanding of what happens when the economy changes. Whether the effect is a negative or a
positive, there are policies that are put into place to help direct the economy as a whole back to a
state of equilibrium.
Instability in the economy arises from two main sources, they are: price stickiness and
unexpected shocks to either aggregate demand or aggregate supply (Current Issues pg. 364).
Price stickiness is the resistance of a price to change, despite changes in the broad economy that
suggests a different price is optimal. In broader terms a price moves easy in one direction
whether that be up or down it doesn’t matter, but if the price tries to go the opposite way it takes
great effort to do so. Hence why it’s called price stickiness. The reason for why it is important in
