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Topic: Miscellaneous
Number of pages / Number of words: 4 / 1022
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If e falls (the domestic currency appreciates), X falls, V rises, thus NX falls and the IS curve shifts to the left. When discussing the effects of various policies (fiscal and monetary), we must be certain of the exchange rate regime: we will get different answers with a flexible regime than with a fixed regime...


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capital flows) we need to construct a BP curve. The BP curve shows the various combinations of interest rates and income levels for which the Current Account (CA) and the Capital Account (KA) offset each other (i.e. the Balance of Payments is in equilibrium). The Current Account (CA) is equivalent to the level of net exports and is determined by the domestic level of income (which affects V), the (constant) foreign level of income (which affects X), and the exchange rate (which affects both V and X)...


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