<p>No, it isn't correct.</p>
<p>In the standard model Aggregate Demand-Aggregate Supply, AD-AS, the IS-LM are part of the demand side of the model.</p>
<p>These curves are used to establish aggregate demand, that is a relation that links output to general level of prices, considering equilibrium in goods market and in money market. The IS curve represents equilibrium in goods market, in particular represents the pairs of output and rate of interest that determine equilibrium in the goods market.</p>
<p>Wages and market labour concern, instead, the supply side of the economy, wages enter the supply side of the model, so a reduction in wages affects the supply side, not demand side and IS.</p>

CC BY-SA 4.0
2022-11-18T18:05:54.750Z
Thanks so much! You mentioned that a reduction in wage spending has no relation with IS-LM curve, right? because it affects the supply side.
Nick
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2022-11-18T19:46:05.760Z
Yes! Look at labour market to see the effects of a change in wages.
BakerStreet
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2022-11-18T19:50:06.750Z
Thanks, sir, do you know that  does the globalization have an effect on IS-LM-PC model?
Nick
CC BY-SA 4.0
2022-11-18T19:56:52.493Z
This is a too general and too broad question to be answered, wait to go ahed in your studies of economics to have a clearer idea of such questions.
BakerStreet
CC BY-SA 4.0
2022-11-18T20:49:31.127Z
Does it make sense Sir? If firms reduce wage spending, so they have more money to put into production, hence, Investment drives demand, bcz IS-LM are part of the demand side. then it will affect the IS-LM curve?
Nick
CC BY-SA 4.0
2022-11-18T21:06:22.050Z
In everyday language it makes sense, but as an economist, one has to put it in formal economic models,  also a specific mathematical form. Not every model can explain everything, you should for instance appropriately modify the IS-LM model, if you want to deal with this question in that framework:  you have to build a new model, and see if it works. I don’t know, you can try, it could be a useful exercise to think about the model.
BakerStreet
CC BY-SA 4.0
2022-11-18T21:19:13.660Z
Thank you, sir. You are so helpful, Thanks for answering.
Nick
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2022-11-18T21:19:56.483Z
You are welcome!
BakerStreet
CC BY-SA 4.0
2022-11-18T11:58:54.520Z
2022-11-18T11:58:54.520Z
BakerStreet
<p>If the firm reduces the wage-spending, so the point of the IS curve will move downward?<br />
Is that correct?</p>

<macroeconomics><microeconomics>
IS-LM model question
Nick
# IS-LM model question

(Asked by: username_0 on 2022-11-18)

If the firm reduces the wage-spending, so the point of the IS curve will move downward?  
Is that correct?

**Tags:** macroeconomics, microeconomics

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## 1 answers

### Answer by username_1 on 2022-11-18. Score: 0 | Accepted answer

No, it isn't correct.

In the standard model Aggregate Demand-Aggregate Supply, AD-AS, the IS-LM are part of the demand side of the model.

These curves are used to establish aggregate demand, that is a relation that links output to general level of prices, considering equilibrium in goods market and in money market. The IS curve represents equilibrium in goods market, in particular represents the pairs of output and rate of interest that determine equilibrium in the goods market.

Wages and market labour concern, instead, the supply side of the economy, wages enter the supply side of the model, so a reduction in wages affects the supply side, not demand side and IS.

> **Comments:**
> **username_0**: Thanks so much! You mentioned that a reduction in wage spending has no relation with IS-LM curve, right? because it affects the supply side.  
> **username_1**: Yes! Look at labour market to see the effects of a change in wages.  
> **username_0**: Thanks, sir, do you know that  does the globalization have an effect on IS-LM-PC model?  
> **username_1**: This is a too general and too broad question to be answered, wait to go ahed in your studies of economics to have a clearer idea of such questions.  
> **username_0**: Does it make sense Sir? If firms reduce wage spending, so they have more money to put into production, hence, Investment drives demand, bcz IS-LM are part of the demand side. then it will affect the IS-LM curve?  
> **username_1**: In everyday language it makes sense, but as an economist, one has to put it in formal economic models,  also a specific mathematical form. Not every model can explain everything, you should for instance appropriately modify the IS-LM model, if you want to deal with this question in that framework:  you have to build a new model, and see if it works. I don’t know, you can try, it could be a useful exercise to think about the model.  
> **username_0**: Thank you, sir. You are so helpful, Thanks for answering.  
> **username_1**: You are welcome!  

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