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Unformatted text preview: olicy Y ISLMBP analysis: fixed exchange rates
r LM1
b r2
r3
r1 LM2 BP
c
Restoration of
full equilibrium a IS2
IS1
O Y1 Y2 Y3 An expansionary fiscal policy Y ISLMBP analysis: fixed exchange rates
r BP
LM1 r1 a IS2
IS1
O Y1 An expansionary fiscal policy:
BP curve steeper than LM curve
LM Y ISLMBP analysis: fixed exchange rates
r BP
LM1
b r2
r1 a IS2
IS1
O Y1 Y2 An expansionary fiscal policy:
BP curve steeper than LM curve
LM Y ISLMBP analysis: fixed exchange rates
r BP
LM1
b r2
r1 a Balance of payments
deficit causes money
supply to contract IS2
IS1
O Y1 Y2 An expansionary fiscal policy:
BP curve steeper than LM curve
LM Y ISLMBP analysis: fixed exchange rates
r BP LM1 c r3 b r2
r1 LM2 Restoration of
full equilibrium a IS2
IS1
O Y1 Y3 Y2 An expansionary fiscal policy:
BP curve steeper than LM curve
LM Y ISLMBP analysis: fixed exchange rates Effect of an expansionary
Effect
monetary policy
under fixed exchange rates ISLMBP analysis: fixed exchange rates
r LM1 BP
r1 a IS
O Y1 An expansionary monetary policy Y ISLMBP analysis: fixed exchange rates
r LM1 LM2 BP
r1 a
b r2 IS
O Y1 Y2 An expansionary monetary policy Y ISLMBP analysis: fixed exchange rates
r LM1 LM2 BP
r1 a
b r2 Balance of payments
deficit causes money
supply to contract again IS
O Y1 Y2 An expansionary monetary policy Y ISLMBP analysis: fixed exchange rates
r LM1 LM2 BP
r1 a
b r2 Full equilibrium
is restored
back at point a IS
O Y1 Y2 An expansionary monetary policy Y ISLMBP analysis: f...
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This document was uploaded on 05/18/2012.
 Spring '09
 Deficit

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