 the ISLM and Aggregate Demand, Aggregate Supply Model, a general framework for macroeconomic analysis. Dear students, in the last lessons, we talked about business cycle effects and we saw that macroeconomists are actually interested in this to understand why these fluctuations come, number one. And secondly, to understand how the economy responds to these fluctuations and shocks. So in this context, what we will talk about today is the ISLM framework. We will develop a framework which will help us to know all the three major components of the economy. We will talk about labour market, goods market and assets market. We have discussed these three separately, labour markets separately and the other markets separately. So ISLM is a framework in which we will discuss these three markets simultaneously. So this is a widely applied macroeconomic model in which we can analyze the cyclical fluctuations, number one. And number two, we can see the impact of different economic policies on the economy. So in the last lessons, we talked about Aggregate Demand and Aggregate Supply Model. And we will look at the ISLM framework. We can develop and derive it by staying in the same framework of Aggregate Demand and Aggregate Supply Model. So what will we do in this ISLM framework? We will discuss labour, goods and assets markets simultaneously. So ISLM is a framework in which we can define the ISLM as IS Curve, i.e. I Investment and Saving Equalities. And similarly, we can define the MONEY Market, L for liquidity and M for Money Demand and M for Money Supply. So this is a framework in which we can represent the MONEY Market's equilibrium and we can define the Goods Market as IS Curve. So this is a very useful tool in which we can explain and understand the business cycle fluctuations. So first we will discuss it graphically and then we will look at it algebraically. This tool was developed by Sir John Hicks in 1937 by Noble Laureate. And this tool is widely used to analyze the economy. So in the first step, we will discuss labour markets and goods markets and asset markets. So in the first step, we will discuss labour markets. And in the second step, we will discuss FELine. You know that when equilibrium comes in the labour markets, employment level is determined from there. And from that employment level, we have a polyimpliment level of output. So before this, when we were discussing aggregate supply curve in the last lesson, we would discuss in the framework of aggregate supply curve P and Y. Now the ISL model is that we will collect all these things in the R and Y space. From the labour market, we will draw the full employment level of output to R, R for Real Interstate and Output in this space. Similarly, we will discuss goods market in R and Y space and money market in R and Y space simultaneously. So if we plot output against the Real Interstate, we get a vertical line. Last time aggregate supply curve, if you remember, we had a vertical supply line in which space it was. Vertical axis was P and horizontal axis was Y. Today we are going to do it. Horizontal axis was Y and vertical axis was P. Now we will take Real Interstate. So if we plot output against the Real Interstate, we will get again a vertical line. Since labour market equilibrium is unaffected by change in the Real Interstate. So this is a full employment line. Aggregate supply curve was also vertical. I am reminding you again. But the difference is that we used to take price level on vertical axis. Aggregate supply curve which we used to draw in the long run. Horizontal axis was Y only. But the price level on vertical axis was Y. Now we are taking Real Interstate on this vertical axis. And we are showing this on this vertical line that whatever is the Interstate, the full employment level of output remains the same. This does not affect it. If you know that the investment changes due to the change in the Real Interstate. But if you know the investment, it will change the future capital stock. Current capital stock will not change due to investment. So the full employment level of output is determined by the current capital stock. So that is why whatever is the Real Interstate, this full employment level of output Y bar will remain the same. And you will get a vertical line. So what are the factors that can shift the full employment line? Let us talk about this. The full employment level of output is determined by the full employment level of employment in the labour market and the current level of capital and productivity. So any change in these variables will shift the full employment line. That is labour market, labour demand and supply will be determined by the employment level. And when we put the employment level in the production function, then you will get the output level determined. So the output level determined is given level of technology, productivity and given level of capital stock. So when productivity changes or capital stock changes, then you will get the full employment level of output. So what are the factors that will shift the full employment line? The full employment line shifts right because of a beneficial supply shock. That is beneficial supply shock means that the production function will shift you upward. Okay. Now what will be the factors that will shift the full employment line? If you increase the productivity of the full employment line, then you will get the full output of the full employment line. And similarly, if there is an increase in the labour supply, what will happen to the labour supply? The employment level will increase. Productivity, beneficial shock in Teeja, employment level was the same, but with the same employment, we were able to produce more than before. When productivity increased, people were giving more output than before. The second factor is that labour supply increases. People can think of any bishma and its reasons. We have discussed it in detail. So what will happen to the labour supply? The employment level will increase. And your full employment line will shift upward. What else can be the reason? An increase in the capital stock. We have also discussed that capital and labour support each other. When the labour supply increases, then the output will increase. Similarly, if labour supply increases, then the output will increase. When the capital stock increases, this will increase the full employment level of the output. And the full employment line will shift to the right. So the full employment line will shift to the left. These are the three things we have discussed. If the beneficial supply is a shock, the full employment line will shift to the right. If the adverse shock is a shock, then the labour supply will shift to the left. Similarly, when labour supply increases, the full employment line will shift to the right. When labour supply shrinks, then the labour supply will shift to the left. Similarly, the labour supply will shift to the capital stock. So here we will revise this one more time. बनेफिशल सपलाई शुक किन तीजे में, तिक आपी लाईन रहीट वर शिफ्ट हो जाएगी. क्यों शिफ्ट हो जाएगी? तो दोस में, वजुहात हो सकती है. एक तो यह कि मोर अउट्फुट केन भी प्रदूज फर दस सेम आमाच्ट अप चपिटल आन लेपर. तो उतनी ही लेपर और कापिटल से नाव वी केन है, वी केन प्रदूज मोर अउट्फुट नंबर वाईन. और दुस्रा यह है कि जब भी प्रदूजग्ट वीटी शोग आता है, बनेफिशल और प्रदूच्ट आप वर शिफ्ट करते है, तो उसके नतीजे में माजनार प्रट्ट अप लेपर भी उजिली उस में इजाफा हो जाता है. तो क्या हुँँँँँ? के एक तो जितनी लेपर पहले थी इंप्लायमेंट, वो पहले से जादा प्रटूग्टेप होगी है. नमर वाँइँँ, उर Away की माजंद 발 क्या है से क्या लेपर स्प्फह olmasे खॉत Totally आपता है. तो मग Danny तब आपा य मीड़ाप falsch ति languages कर्थे है। अब आद ज़ेगाग, तो उसे full employment level of output उसे full employment level of output अद्वोज़्यगी अद्वोज़्यगी और ताड़ आब ने बाद की ती capital stock, capital stock मैं आप को बताए अग लेबर एक तुस्टी को. सबोट करते हैं, तो जब capital stock में इधाफ़ा हो जैगा, तो उसी labor से अब आप पहले से जियादा output लेई सकेंगे. So, more output can be produced with the same amount of labor. Number one, in addition, increased capital may increase the marginal product of labor, which increases labor demand, or employment, or उसकिंतीजे में full employment level of output बड़गे. आज हमने क्या बास समजी है, आज हमने f-e-line पर बात की है, f-e-line क्या है? अब हम काम करेंगे ISLM framework, हमने आई start की है, ISLM framework में हम तीनो market को labor market, goods market, aur asset market. इन तीनो को हम simultaneously discuss करेंगे, तीके, और ये किस framework में हम बात किस space में हम काम करेंगे, वर्टिका लेक्सिट पर लेंगे, वर्टिका लेक्सिट लेंगे, वर्टिका लेक्सिट पर लेंगे, तो आब हमने full employment level of output को इस space में हमने एक लाईन, वर्टिका लाईन बनाया, उसको समजा, यो उसी तरा की एक वर्टिका लाईन है, जैसे aggregate supply करवती, अपकी दोनो मरकिट को भी हम next lessons में दिसकर सकर लेंगे, ख़ेंगे.