Draw a BP curve, and label it BP1. Label the vertical and horizontal axes. Graph the following curves by clicking here
Why does the BP curve normally slope upward?
Draw a point somewhere to the left of BP1, and label it G. If the economy is at point G, how and why will it return to BP1?
Draw a new BP curve lying everywhere to the right of BP1, and label this new curve BP2. What could cause such a shift?
What influences the slope of the BP curve? Under what circumstances will it be steep? Under what circumstances will it be flat?
This question involves fiscal policy under a fixed exchange rate system if capital is assumed to be perfectly immobile.
Graph the following curves by clicking here
First, construct a graph, putting income (Y) on the horizontal axis and the interest rate (i) on the vertical axis.
Graph and label the IS, LM, and BP curves.
Label the interest that occurs at the intersection of the three curves as i1, and the income level as Y1.
Suppose now that a tax increase is enacted. How will this affect the IS curve? Label the new IS curve IS2.
How will tax increase affect the LM curve? Label the new LM curve LM2.
How will the tax increase affect equilibrium levels of income and the interest rate?
This question involves monetary policy under a fixed exchange rate system if capital is assumed to be perfectly mobile.
Graph the following curves by clicking here
First, construct a graph, putting income (Y) on the horizontal axis and the interest rate (i) on the vertical axis.
Graph and label the IS, LM, and BP curves.
Label the interest that occurs at the intersection of the three curves as i1, and the income level as Y1.
Suppose now that the money supply is cut. How will this affect the LM curve? Label the new LM curve LM2. Explain.
How will the tighter monetary policy affect equilibrium levels of income and the interest rate?
