The mathematical expression of IS curve IS I(R)=S(Y), and its slope is negative, which shows that is curve is generally inclined to the lower right. Generally speaking, in the product market, the combination of income and interest rate on the right side of the IS curve is an unbalanced combination of investment less than savings; The combination of income and interest rate on the left side of IS curve is an unbalanced combination of investment greater than savings. Only the combination of income and interest rate on the IS curve is the balanced combination of investment and savings. China characteristics of a LM curve According to the IS-LM model, the LM curve inclines to the upper right, indicating that the combination of low interest rate and less national income, and the combination of high interest rate and more national income can realize the equality of money supply and demand. In China, the LM curve inclines to the lower right, indicating that the combination of high interest rate and less national income and the combination of low interest rate and more national income can achieve the equality of money supply and demand. This completely different conclusion can also be demonstrated by Mr. Ao's demonstration mode 1, which puts four figures belonging to the first quadrant together. In western countries, the speculative money demand L2(i) shown in Figure (I) inclines to the lower right, indicating that the lower the interest rate, the more speculative money the public owns. China's speculative money demand L2(i) leans to the upper right, indicating that interest rates are falling, but speculative money demand is decreasing. This situation, which is different from that of developed countries, has been proved by China's seven consecutive interest rate cuts, the slow growth of savings deposits, and a large amount of funds entering the stock market and bond market. Although savings deposits are not cash, in Keynes's exposition, savings deposits that can enter the national debt market for trading also belong to speculative money demand 2. Therefore, the inclination direction of China's speculative money demand curve is opposite to that of western countries. The important reason is that China's money supply and interest rate change are different from those in western countries. The money supply in western countries is mainly realized by the central bank buying government bonds, while the money supply in China is mainly realized by the central bank refinancing, purchasing agricultural products and foreign exchange. The increase of money supply in western countries means the decrease of interest rate, because when the central bank buys government bonds at a high price, the interest rate decreases accordingly; On the contrary, selling government bonds at low prices means that interest rates will rise at the same time. The change of money supply in China is not directly related to the fluctuation of interest rate. Foreign exchange and purchases of agricultural products have increased. If there is no separate document issued by the central bank, the interest rate will not fall. On the contrary, without issuing documents, interest rates will not rise. It is in this different institutional background that their speculative money demand and interest rate change in the opposite direction, while ours changes in the same direction. Because their public will definitely use the high price of the central bank's open market to buy government bonds, sell them, hold the money in their hands, wait until interest rates rise and bond prices fall, and then buy bonds to earn the difference. As a result, the interest rate dropped, and the public's demand for speculative currency increased accordingly. The decline in interest rates in China has reduced the income of public savings deposits. In order to obtain higher income, the public will buy a considerable amount of savings deposits, thus pushing up the price of national debt and reducing the demand for speculative money held by the public. Compared with western countries, their interest rates have fallen, while the price of national debt has risen. When buying government bonds at this time, as long as the interest rate rises, the price of government bonds will inevitably fall, and bondholders will suffer losses. Therefore, the public must increase their own currency instead of holding national debt, and the demand for speculative currency will definitely increase. When the interest rate in China fell, the prices of stocks and bonds did not change. At this time, whoever buys stocks and bonds first will make money. Of course, the public will increase their holdings of treasury bonds and reduce their holdings of currencies, and the demand for speculative currencies will also decrease accordingly. Obviously, the prices of government bonds in developed countries are bought and speculated by the central banks, and interest rates are falling simultaneously. As a seller, the public's currency holdings will certainly increase. After the interest rate fell, the price of China's national debt was bought by the public, and the public's money entered the central bank, so the demand for speculative currency naturally decreased. It is not difficult to find the experience of speculative money demand and interest rate changing in the same direction in China. Since 1996, China has cut interest rates for seven consecutive times, and the growth rate of savings deposits has dropped month by month, from 18.5% in June 1999 to 6.3% at the end of 2000. The bond market has gathered a lot of funds, and the demand for bond stocks has increased by 2.6 and 1.6 respectively. From 200 1, the growth rate of savings tends to be stable, and the demand for national debt is very strong. The situation of queuing to buy mentioned by Premier Zhu still exists, which is enough to prove that the speculative money demand in China changes in the same direction as the interest rate, so the L2 curve inclines to the upper right. It should be pointed out that China's public's speculative awareness is not very strong, its financial strength is limited, and the investment demand of money is not sensitive to interest rates, so L2 is a curve that is inclined to the upper right, steep and close to the origin. In Figure (Ⅱ), the 45-degree line connecting L 1 and L2 shows that the demand for transactional money and speculative money absorbs the same amount of money supply. If the demand for speculative currency increases, the demand for transactional currency will decrease, and vice versa. The L 1 curve in Figure (III) also slopes sharply to the upper right, indicating that the demand for currency transactions is relatively large at a given national income level. Because 1999, the savings of China residents accounted for 40% of GDP, most of which were used to hold money to buy and prevent unexpected events, and a small part entered the market to speculate on stocks and bonds, so the demand for transactional currency was less than or close to 40% of GDP. According to Keynes's theory, savings deposits can be used as the investment demand of money or the transaction demand of money, and there is no clear boundary between them. On the basis of these three graphs, by arbitrarily choosing two interest rate points, we can find the national income point that can realize the equality of money supply and money demand, thus forming a steep LM curve on graph (Ⅳ), which is quite different from IS-LM model and inclines to the lower right. It shows that under a given money supply condition, with low interest rate and less speculative money demand, the demand for transactional money will increase accordingly, so as to realize the equality between money supply and money demand, and the condition for increasing transactional money demand is the corresponding increase of national income; On the other hand, if the interest rate is high and the demand for speculative money is high, the demand for transactional money will decrease, and the national income will also decrease accordingly. The China characteristic of the second IS curve is not obviously different from that described in the IS-LM model, but steeper, so the important reason for this situation is that the interest rate elasticity of investment in China is relatively small and the savings level is relatively high. The investment curve in Figure 2 (I) inclines sharply to the lower right, because the problem of soft budget constraints of state-owned enterprises in China has not been fundamentally solved, and government investment, including that of state-owned enterprises, is still the main part of China's investment. These two parts of investment are largely influenced by the government's macro-control objectives, so they are not sensitive to interest rates. Although the proportion of China's private economy in the national economy has obviously increased, its investment in the whole investment is still relatively limited, which determines that the investment curve I is steep. Although some scholars believe that investment and interest rates in China change in the same direction. The author still thinks that the reverse change of investment and interest rate is more reasonable. The 45-degree line in Figure (2) shows that through information technology, investment can be equal to savings. The savings curve S in Figure (3) is relatively flat, indicating that the income level of Chinese residents is not high. According to the previous data, the savings tendency is set at 40%. On the basis of these three maps, you can find the corresponding national income point by choosing two interest rate points at will, and realize the equivalence between investment and savings. As shown in (Ⅳ), China's IS is a steep curve, indicating that China's investment is not sensitive to interest rates. Thirdly, judging the effect of China's fiscal and monetary policy, China's IS and LM curves are inclined to the lower right, which will inevitably lead to two kinds of results. First, the two curves are parallel, which makes IS-LM completely unusable in China because they cannot intersect; The other is that the two curves intersect with different slopes, as shown in Figure 3 and Figure 4, but comparing and judging the effects of fiscal policy and monetary policy on this basis will inevitably deviate from our theoretical knowledge and work experience. Before comparing the effects of fiscal policy and monetary policy, explain the particularity of LM curve movement caused by China's monetary policy. According to the theory of IS-LM analysis, expansionary fiscal policy makes the IS curve move to the upper right, while expansionary monetary policy makes the LM curve move to the lower right. The effect of China's fiscal policy is shown in Figure 3, which needs no further explanation. However, monetary policy moves the LM curve to the upper right, as shown in Figure 4. Because, with the increase of money supply, under the condition of constant interest rate and constant speculative money demand, only by increasing national income can the increased money supply be absorbed by transactional money demand, that is, under the condition that the interest rate is i 1, the national income must be from Y 1 to Y2. In other words, under the condition that the national income remains unchanged, only an increase in interest rate can increase speculative money demand and absorb the increased money supply, that is, under the condition that the national income remains at Y 1, the interest rate must rise to i2. Therefore, LM 1 in fig. 4 moves to the right to LM2. In classical theory, the inclination of LM curve to the upper right determines the increase of money supply, which can only make LM curve move to the lower right. It shows that under the condition of constant national income, only the decrease of interest rate can stimulate the public's speculative money demand and digest the increased money supply, so its graph is completely different from the discussion here. Generally speaking, the LM curve in China IS flatter than the IS curve, so the effect of monetary policy in China is better than that of fiscal policy. According to Mr. Yang's analysis method 7, assuming that the national income can increase when the IS and LM curves move and the interest rate remains unchanged, the national income will decrease after the real interest rate changes. If the change of interest rate makes the actual reduction of national income smaller, its policy effect is better, otherwise it is worse. Because China's interest rate can't fluctuate with the market, the only way to evaluate the policy effect IS to compare the influence of the parallel movement of IS and LM curves on national income, without discussing the actual change of interest rate, which leads to the decrease of national income. Because the slope of IS IS smaller than that of LM, the parallel movement of LM determines that the growth of national income is greater than that of IS. As shown in figs. 3 and 4, it IS assumed that the moving ranges of the IS and LM curves are the same, but the distance from Y 1 to Y2 in fig. 3 is smaller than that in fig. 4. Although the decrease of national income from Y2 to Y3 due to the change of interest rate in Figure 4 is much larger than that in Figure 3, the effect of monetary policy is better than that of fiscal policy because the interest rate remains unchanged. Moreover, if there is no government to artificially lock interest rates, fiscal policy will exert downward pressure on interest rates, while monetary policy will exert upward pressure on interest rates. This is another argument contrary to the classical theory, because the classical theory holds that expansionary fiscal policy makes interest rates rise, while expansionary monetary policy makes interest rates fall. This conclusion is completely different from the judgment of game theory and people's life feelings. At present, China's theoretical circles generally believe that the effect of fiscal policy is better than that of monetary policy, so China's management is also adopting a proactive fiscal policy and a prudent monetary policy. Therefore, the expansionary fiscal policy will lead to a decline in interest rates, while the increase in money supply will lead to an increase in interest rates, which are all included in the downward inclination of the LM curve. Because the expansionary fiscal policy leads to the increase of government investment and the increase of transactional money demand, it is necessary to reduce speculative money demand to ensure the equality of money supply and money demand. Its condition in China is a corresponding decrease in interest rates. If there is no administrative control over interest rates, the interest rate in Figure 3 will drop to i2 and the national income will increase to Y2. Expansionary monetary policy requires a corresponding increase in money demand, and the important condition for increasing money demand is the rise in interest rates, which will increase China's speculative money demand. An increase in interest rates will discourage investment. In Figure 4, the new equilibrium point is that the interest rate rises to i2 and the national income decreases to Y3. According to this IS-LM analysis, management should implement expansionary monetary policy, not expansionary fiscal policy. However, as we all know, China's financial market is immature, public consumption is not hot, the transmission of monetary policy is blocked, and the effect of direct expenditure of fiscal policy is better than that of monetary policy. Therefore, according to China's IS-LM model, it is likely to mislead the management's policy choice. Four important revelations IS-LM model is a very effective macro-analysis method proved by the experience of various countries. The poor application effect in China is not due to the defects of this model itself, but because China does not have the basic conditions to use this model. If we can surpass the economic development stage of using this model, we don't need to create the basic conditions for using this model. However, the possibility of this transcendence seems very small. Moreover, China's financial reform has been calling for interest rate marketization, so we should actively create conditions. Before this condition is really mature, we can't rashly use the conclusion of this model, let alone make further derivation with the conclusion of this model. In addition, we must be cautious about other contemporary economic and financial theories and models, and we can't make further deduction directly based on their conclusions, because almost all of these theories and models are based on the marketization of interest rates and the purchase of government bonds by the central bank to increase the money supply. Without this, the application of these theories in China is bound to be "orange in Huaibei is bitter orange", just like the application of IS-LM model in China will have problems.