Question

Discuss Keynes arguments about the importance of nominal (money) wages and their relationship to real wages. Why was he critical of neoclassical (he uses the term classical) economics?

Answer 1

According to Keynes arguments regarding the importance of wages which explains a relationship between nominal or money wages and real wages.The nominal wage is the wage which actually paid in money.or it is the amount by which earn from per day or hour basis. But real wages are the wages which consider the inflation or price level changes in the nominal wage. The actual or considering the factor like purchasing power which is considered wage is real wage. As per keyness arguments the wage policy more sticky on the wages called like nominal wage rigidity in their wage policy.That means the nominal wage is cut down with respect to consider the real wages. Here the Keynes consider other factors like interst rate and capital investment efficiency etc..due to this the cut off the nominal wages which is not much impact on the employment.
But on the classical economist and the neo classical economist different view in the nominal wage rate because if there a cut in the nominal wage rate which is ultimately decreasing the employment .so lead to unemployment. So it is not agree with this concept from the classical economist .The neo classical economicst Keynes gives a totally different argument regarding the importance of the nominal or money wages with respect to real wages.