Policy y is lm bp analysis fixed exchange rates r lm1

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Unformatted text preview: loating exchange rates Floating exchange rates: Floating The BP curve IS-LM-BP analysis: floating exchange rates r SURPLUS BP O Y IS-LM-BP analysis: floating exchange rates r SURPLUS Appreciation BP O Y IS-LM-BP analysis: floating exchange rates r BP DEFICIT O Y IS-LM-BP analysis: floating exchange rates r BP Depreciation DEFICIT O Y IS-LM-BP analysis: floating exchange rates Effect of an expansionary Effect fiscal policy under floating exchange rates IS-LM-BP analysis: floating exchange rates r LM b r2 r1 BP a IS2 IS1 O Y1 Y2 An expansionary fiscal policy Y IS-LM-BP analysis: floating exchange rates r LM b r2 r1 BP a IS1 IS2 Balance of payments surplus causes the exchange rate to appreciate O Y1 Y2 An expansionary fiscal policy Y IS-LM-BP analysis: floating exchange rates r LM b r2 r1 BP The appreciation causes the IS curve to shift to the left a IS1 O Y1 Y2 An expansionary fiscal policy IS2 Y IS-LM-BP analysis: floating exchange rates r LM r2 c r3 r1 BP2 BP1 b Full equilibrium is restored at point c a IS2 IS3 IS1 O Y1 Y3 Y2 An expansionary fiscal policy Y IS-LM-BP analysis: floating exchange rates r BP1 LM r2 r1 a b IS2 IS1 O Y1 Y2 An expansionary fiscal policy: BP curve steeper than LM curve LM Y IS-LM-BP analysis: floating exchange rates r BP1 LM r2 r1 a b Balance of payments deficit causes exchange rate to depreciate IS2 IS1 O Y1 Y2 An expansionary fiscal policy: BP curve steeper than LM curve LM Y IS-LM-BP analysis: floating exchange rates r BP1 LM r2...
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