Final answer:
The inflation rate is slow to adjust because of sticky prices and wages, which are resistant to change in response to fluctuations in aggregate demand. This stickiness can cause temporary unemployment and recession due to an excess supply of goods and labor.
Step-by-step explanation:
The inflation rate is slow to adjust over time due to sticky prices and wages. According to Keynesian economics, prices and wages do not immediately respond to fluctuations in aggregate demand (AD). This stickiness, or resistance to change, comes from several factors including the coordination argument, which notes that systemic wage decreases are hard to implement across the market. Additionally, businesses may avoid wage cuts to maintain worker morale and productivity, contributing to wage rigidity. In the goods market, price stickiness can lead to excessive supply and reduced demand, resulting in recession and unemployment when combined with decreased demand.
Over the long run, prices and wages do become more flexible, allowing the economy to eventually readjust to its potential GDP level. However, this adjustment can take time, which is reflected in the slow change of the inflation rate.