Is it a tight fiscal policy to increase tax incentives?
On the one hand, inflation is caused by excessive money issuance, but it is also caused by excessive investment. If only money is issued without investment, it will be a liquidity trap, and China has this sign at present.
Therefore, the tight fiscal policy, due to the reduction of fiscal expenditure and the increase of tax revenue, is generally equivalent to the reduction of expenditure, which will further lead to the reduction of investment, and ultimately lead to the reduction of demand and the decline of prices.
The complete formula of IS curve is
The formula you gave IS not the general expression of IS curve, but the general expression is:
Y=C+I+G, where Y stands for income, C stands for consumption, I stands for investment and G stands for government purchase.
C=C0+AY0, where C0 is the necessary consumption, Y0 is the disposable income and A is the coefficient.
Y0=( 1-t)Y, where t is the tax rate.
I=E-Fr, where e is spontaneous investment, f is coefficient and r is interest rate.
The logic of each of the above formulas is very simple when taken separately. When these formulas are kneaded together, it is:
Y=C0+A( 1-t)Y+E-Fr+G
Move (1-t)Y to get:
Y-AY+AtY=C0+E-Fr+G
Finishing:
y = C0+E-Fr+G/ 1-A( 1-t)
ThIS is the complete form of the IS curve.
From thIS, we know that the KG in the formula you gave is the multiplier purchased by the government, and the expression of investment can be obtained through the formula deformation of the IS curve:
I = e-fr = y [1-a (1-t)]-c0-g, so there is no reasonable explanation, and the only possibility is that you said I was an interest rate instead of an investment. (The usage of letters in various textbooks is not uniform, sorry)
r = { E-Y[ 1-A( 1-t)]+C0+G }/F
So you know what the letters in your formula stand for. In your formula, a represents the combination of spontaneous consumption, spontaneous investment and government purchase, b represents the coefficient between investment and interest rate, c represents the coefficient in the consumption function, t is the tax rate, and KG is the government purchase multiplier. In the formula, you can see that KG is in the molecular position.