Question

Give two reasons explaining the possibility that wage rates may not fall.

How was Keynes’s position different from the classical position with respect to saving and investment?

According to some economists, why might business firms pay wage rates above market-clearing levels?

Answer 1

Ans

1 Because of menu cost. It is costly fir firms to change prices and even thus wages are not reduced since prices do not fall

Second reason is that labour is strongly against wage fall because they are used to a standard of living

2 first according to classicals whatever is saved is invested. But Keynes argue that savers and in esters are different persons. Classicals think interest motivates saving but Keynes gives primary sole to income for leading to saving

According to classicals interest determines investmentbut according to Keynesians returns on investment and expectations are more important

3 To increase efficiency and reduce costs of turnover