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Neo-Classical economists assume that prices and nominal wages are flexible. They assume that since they are perfectly competitive markets, they will always clear. As you mentioned in your question, if there is an increase in price, there is an equivalent increase in nominal wages and voila! real wages remain constant. This is far from the truth. The reason ...


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Classical economics is actually not taught at universities anymore (not since 19-20 century at least). You probably have in mind some Neoclassical model. I will presume that since you say you study macroeconomics and not only classical economics is now just part of history of economics, it for the most part did not dealt with macroeconomics. You don’t ...


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However, the market could normalize after this as the money earnt by a nation's richest would eventually be more evenly distributed amongst others, hence they would spend more, canceling the downturn. Wage cap is not an redistribution measure. It’s an measure aimed at reducing inequality but without any direct redistribution. For example, suppose you have ...


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