11.   Keynes claimed that, even if the labour market were competitive, the real wage rate would not fall in the presence of a substantial excess supply of labour.

12.   In other words rigidities and frictions in the response of money wages and prices to a state of general excess supply provide a practical justification for demand management policies.

13.   On the other hand, if the initial state is one of excess supply money-wages will fall at a rate.

14.   In particular, the real wage will adjust spontaneously so as to prevent the emergence of excess supply in the labour market.

15.   Hence there is notional excess supply in the labour market, which is necessarily mirrored in notional excess demand in the goods market.

16.   With the passage of time, money wages and prices will be revised downwards in the presence of excess supply in both the labour market and the goods market.

17.   The excess supply of money in the domestic money market will push down the rate of interest.

18.   This creates an excess supply of money at the interest rate Oi l.

19.   Assuming that wages and prices are flexible upwards and downwards, the excess supply of labour will cause money wages to fall.

20.   In fact, there will be an excess supply of goods and services on the market which will exert downward pressure on prices.