The traditional thrust of Keynesian economics is that the level of output is demand determined at least until the capacity of economy is reached This view is consistent with the treatment of the determination of national income contained in Chapter 1. In the simple Keynesian model changes in aggregate demand induce changes (i) only in real output until the capacity output (i.c.full employment of the economy)is attained and (ii) only in the price level once capacity output is reached. Within this analytical framework wage rates are regarded as being determined exogenously through the employer/ trade union bargaining proeedure so that they (unresponsive) to changes in demand