# IS-LM Effect of Change in Consumer Confidence

What is the effect of government reforms (unspecified) that decrease customer's confidence about their future wages (analysed using the IS-LM model)?

I think that less confidence about future wages will cause people to save more (rise in MPS or equivalently a fall in MPC). This causes the autonomous component of the IS curve to decrease, and the gradient to become flatter.

Using the following model:

$$Y = \frac{1}{(1-c_1-d_1)}\cdot A - \frac{d_2}{(1-c_1-d_1)}\cdot i$$

According to my textbook, however, this is incorrect. It suggests that the IS curve is shifted to the right, leading to an increase in $$i$$ and $$Y$$.

Could somebody kindly shed some light on this for me?

Thanks!

• Welcome to econ.SE! Please consider taking the time to read the help section (economics.stackexchange.com/help) to familiarize yourself with some of our common practices. In addition, meta.math.stackexchange.com/questions/5020/… should give you a start at learning how to typeset mathematics here so that your posts say what you want them to, and also look good. Cheers! Apr 26 '15 at 21:08