| 单词 | Pigou effect |
| 释义 | Pigou effect The argument that price and wage flexibility could prevent unemployment. If prices and wages fell sufficiently in a slump, full employment would be restored because of the resulting increase in the real money supply. In practice nobody relies on such a mechanism. In an economy with money debts, large falls in prices would damage the solvency of many firms, and probably cause the collapse of some financial institutions. Perfectly flexible prices and wages might ensure real stability in the economy; if prices and wages fell gradually, however, the prospect of further falls to come would bring the liquidity trap into play, with adverse effects on real spending, so the short-term effects of greater price and wage flexibility might well make slumps worse. In practice nobody knows how far prices would have to fall before increased real balances started a recovery. |
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