Fixed exchange rates:

1
IS-LM-BP analysis fixed exchange rates
Fixed exchange rates The BP curve
2
IS-LM-BP analysis fixed exchange rates
r
BP
O
Y
Zero Capital Flows
3
IS-LM-BP analysis fixed exchange rates
r
O
Y
Restricted Capital Flows
4
IS-LM-BP analysis fixed exchange rates
r
BP
O
Y
Restricted Capital Flows
5
IS-LM-BP analysis fixed exchange rates
r
BP
O
Y
Unrestricted Capital Flows
6
IS-LM-BP analysis fixed exchange rates
r
BP
O
Y
7
IS-LM-BP analysis fixed exchange rates
r
Assume that national income rises
BP
a
r1
O
Y1
Y
8
IS-LM-BP analysis fixed exchange rates
r
Assume that national income rises
BP
a
r1
Deficit if rate of interest remains at r1
O
Y2
Y1
Y
9
IS-LM-BP analysis fixed exchange rates
r
BP
a
r1
O
Y2
Y1
Y
10
IS-LM-BP analysis fixed exchange rates
Full equilibrium in the goods, money and foreign
exchange markets
11
IS-LM-BP analysis fixed exchange rates
r
O
Y
Full equilibrium in the goods, money and foreign
exchange markets
12
IS-LM-BP analysis fixed exchange rates
Effect of an expansionary fiscal policy under
fixed exchange rates
13
IS-LM-BP analysis fixed exchange rates
r
LM1
BP
a
r1
IS1
O
Y1
Y
An expansionary fiscal policy
14
IS-LM-BP analysis fixed exchange rates
r
LM1
b
r2
BP
Balance of payments surplus causes money supply
to expand
a
r1
IS2
IS1
O
Y1
Y2
Y
An expansionary fiscal policy
15
IS-LM-BP analysis fixed exchange rates
r
LM1
b
r2
BP
a
r1
IS2
IS1
O
Y1
Y2
Y
An expansionary fiscal policy
16
IS-LM-BP analysis fixed exchange rates
r
LM1
a
r1
IS1
O
Y1
Y
An expansionary fiscal policy BP curve steeper
than LM curve
17
IS-LM-BP analysis fixed exchange rates
r
BP
LM1
b
r2
a
r1
IS2
IS1
O
Y1
Y
An expansionary fiscal policy BP curve steeper
than LM curve
18
IS-LM-BP analysis fixed exchange rates
r
BP
LM1
b
r2
Balance of payments deficit causes money supply
to contract
a
r1
IS2
IS1
O
Y1
Y2
Y
An expansionary fiscal policy BP curve steeper
than LM curve
19
IS-LM-BP analysis fixed exchange rates
r
BP
LM1
b
r2
a
r1
IS2
IS1
O
Y1
Y2
Y
An expansionary fiscal policy BP curve steeper
than LM curve
20
IS-LM-BP analysis fixed exchange rates
Effect of an expansionary monetary policy under
fixed exchange rates
21
IS-LM-BP analysis fixed exchange rates
r
LM1
BP
a
r1
IS
O
Y1
Y
An expansionary monetary policy
22
IS-LM-BP analysis fixed exchange rates
r
LM1
LM2
BP
a
r1
IS
O
Y1
Y
An expansionary monetary policy
23
IS-LM-BP analysis fixed exchange rates
r
LM1
LM2
BP
a
r1
Balance of payments deficit causes money supply
to contract again
b
r2
IS
O
Y1
Y2
Y
An expansionary monetary policy
24
IS-LM-BP analysis fixed exchange rates
r
LM1
LM2
BP
a
r1
b
r2
IS
O
Y1
Y2
Y
An expansionary monetary policy
25
IS-LM-BP analysis floating exchange rates
Floating exchange rates The BP curve
26
IS-LM-BP analysis floating exchange rates
r
SURPLUS
O
Y
27
IS-LM-BP analysis floating exchange rates
r
Appreciation
SURPLUS
BP
O
Y
28
IS-LM-BP analysis floating exchange rates
r
BP
DEFICIT
O
Y
29
IS-LM-BP analysis floating exchange rates
r
BP
Depreciation
DEFICIT
O
Y
30
IS-LM-BP analysis floating exchange rates
Effect of an expansionary fiscal policy under
floating exchange rates
31
IS-LM-BP analysis floating exchange rates
r
BP
O
Y
An expansionary fiscal policy
32
IS-LM-BP analysis floating exchange rates
r
LM
b
BP
r2
a
r1
IS2
IS1
Balance of payments surplus causes the exchange
rate to appreciate
O
Y2
Y1
Y
An expansionary fiscal policy
33
IS-LM-BP analysis floating exchange rates
r
LM
b
BP
r2
a
r1
IS2
IS1
O
Y2
Y1
Y
An expansionary fiscal policy
34
IS-LM-BP analysis floating exchange rates
r
LM
b
BP1
r2
a
r1
IS2
IS1
O
Y2
Y1
Y
An expansionary fiscal policy
35
IS-LM-BP analysis floating exchange rates
r
LM
a
r1
IS1
O
Y1
Y
An expansionary fiscal policy BP curve steeper
than LM curve
36
IS-LM-BP analysis floating exchange rates
r
BP1
LM
b
r2
Balance of payments deficit causes exchange rate
to depreciate
a
r1
IS2
IS1
O
Y2
Y1
Y
An expansionary fiscal policy BP curve steeper
than LM curve
37
IS-LM-BP analysis floating exchange rates
r
BP1
LM
b
r2
a
r1
IS2
IS1
O
Y2
Y1
Y
An expansionary fiscal policy BP curve steeper
than LM curve
38
IS-LM-BP analysis floating exchange rates
r
BP1
LM
b
r2
a
r1
IS2
IS1
O
Y2
Y1
Y
An expansionary fiscal policy BP curve steeper
than LM curve
39
IS-LM-BP analysis floating exchange rates
Effect of an expansionary monetary policy under
floating exchange rates
40
IS-LM-BP analysis floating exchange rates
r
LM1
BP1
a
r1
IS1
O
Y1
Y
An expansionary monetary policy
41
IS-LM-BP analysis floating exchange rates
r
LM1
LM2
BP1
a
r1
The balance of payments deficit causes the BP
line to shift downward
r2
b
IS1
O
Y2
Y1
Y
An expansionary monetary policy
42
IS-LM-BP analysis floating exchange rates
r
LM1
LM2
BP1
a
r1
r2
b
IS1
O
Y2
Y1
Y
An expansionary monetary policy
43
IS-LM-BP analysis floating exchange rates
r
LM1
LM2
BP1
a
r1
r2
b
IS1
O
Y2
Y1
Y
An expansionary monetary policy