islmbp applications to emu economics. islmbp applications to emu economics 1) fixed exchange rates,...
TRANSCRIPT
![Page 1: ISLMBP Applications to EMU Economics. ISLMBP Applications to EMU Economics 1) Fixed Exchange Rates, Fiscal Policy, Low Capital Mobility 2) Fixed Exchange](https://reader035.vdocuments.mx/reader035/viewer/2022062517/56649f165503460f94c2c9fd/html5/thumbnails/1.jpg)
ISLMBP Applications ISLMBP Applications to EMU Economicsto EMU Economics
![Page 2: ISLMBP Applications to EMU Economics. ISLMBP Applications to EMU Economics 1) Fixed Exchange Rates, Fiscal Policy, Low Capital Mobility 2) Fixed Exchange](https://reader035.vdocuments.mx/reader035/viewer/2022062517/56649f165503460f94c2c9fd/html5/thumbnails/2.jpg)
ISLMBP Applications to EMU EconomicsISLMBP Applications to EMU Economics
• 1) Fixed Exchange Rates, Fiscal Policy,
Low Capital Mobility
• 2) Fixed Exchange Rates, Fiscal Policy, High Capital Mobility
• 3) Fixed Exchange Rates, Monetary Policy, Low Capital Mobility
• 4) Fixed Exchange Rates, Monetary Policy, High Capital Mobility
• 1) Fixed Exchange Rates, Fiscal Policy,
Low Capital Mobility
• 2) Fixed Exchange Rates, Fiscal Policy, High Capital Mobility
• 3) Fixed Exchange Rates, Monetary Policy, Low Capital Mobility
• 4) Fixed Exchange Rates, Monetary Policy, High Capital Mobility
![Page 3: ISLMBP Applications to EMU Economics. ISLMBP Applications to EMU Economics 1) Fixed Exchange Rates, Fiscal Policy, Low Capital Mobility 2) Fixed Exchange](https://reader035.vdocuments.mx/reader035/viewer/2022062517/56649f165503460f94c2c9fd/html5/thumbnails/3.jpg)
ISLMBP Applications to EMU EconomicsISLMBP Applications to EMU Economics
• 5) Flexible Exchange Rates, Fiscal Policy, Low Capital Mobility
• 6) Flexible Exchange Rates, Fiscal Policy, High Capital Mobility
• 7) Flexible Exchange Rates, Monetary Policy, High Capital Mobility
• 5) Flexible Exchange Rates, Fiscal Policy, Low Capital Mobility
• 6) Flexible Exchange Rates, Fiscal Policy, High Capital Mobility
• 7) Flexible Exchange Rates, Monetary Policy, High Capital Mobility
![Page 4: ISLMBP Applications to EMU Economics. ISLMBP Applications to EMU Economics 1) Fixed Exchange Rates, Fiscal Policy, Low Capital Mobility 2) Fixed Exchange](https://reader035.vdocuments.mx/reader035/viewer/2022062517/56649f165503460f94c2c9fd/html5/thumbnails/4.jpg)
O Y
BP
LM1
IS1
r1
Y1
a
1. Fixed exchange rates, Fiscal Policy, Low Capital Mobility 1. Fixed exchange rates, Fiscal Policy, Low Capital Mobility
![Page 5: ISLMBP Applications to EMU Economics. ISLMBP Applications to EMU Economics 1) Fixed Exchange Rates, Fiscal Policy, Low Capital Mobility 2) Fixed Exchange](https://reader035.vdocuments.mx/reader035/viewer/2022062517/56649f165503460f94c2c9fd/html5/thumbnails/5.jpg)
O
r
Y
BP
LM1
IS1
r1
Y1
An expansionary fiscal policy:An expansionary fiscal policy:
IS2
a
1. Fixed exchange rates, Fiscal Policy, Low Capital Mobility 1. Fixed exchange rates, Fiscal Policy, Low Capital Mobility
![Page 6: ISLMBP Applications to EMU Economics. ISLMBP Applications to EMU Economics 1) Fixed Exchange Rates, Fiscal Policy, Low Capital Mobility 2) Fixed Exchange](https://reader035.vdocuments.mx/reader035/viewer/2022062517/56649f165503460f94c2c9fd/html5/thumbnails/6.jpg)
a
O
r
Y
BP
LM1
IS1
r1
Y1
An expansionary fiscal policy:An expansionary fiscal policy:BPBP curve steeper than curve steeper than LMLM curve curve
IS2
r2
b
Y2
1. Fixed exchange rates, Fiscal Policy, Low Capital Mobility1. Fixed exchange rates, Fiscal Policy, Low Capital Mobility
![Page 7: ISLMBP Applications to EMU Economics. ISLMBP Applications to EMU Economics 1) Fixed Exchange Rates, Fiscal Policy, Low Capital Mobility 2) Fixed Exchange](https://reader035.vdocuments.mx/reader035/viewer/2022062517/56649f165503460f94c2c9fd/html5/thumbnails/7.jpg)
O
r
Y
BP
LM1
IS1
r1
Y1
An expansionary fiscal policy:An expansionary fiscal policy:BPBP curve steeper than curve steeper than LMLM curve curve
IS2
a
r2
b
Y2
1. Fixed exchange rates, Fiscal Policy, Low Capital Mobility1. Fixed exchange rates, Fiscal Policy, Low Capital Mobility
![Page 8: ISLMBP Applications to EMU Economics. ISLMBP Applications to EMU Economics 1) Fixed Exchange Rates, Fiscal Policy, Low Capital Mobility 2) Fixed Exchange](https://reader035.vdocuments.mx/reader035/viewer/2022062517/56649f165503460f94c2c9fd/html5/thumbnails/8.jpg)
O
r
Y
BP
LM1
IS1
r1
Y1
An expansionary fiscal policy:An expansionary fiscal policy:
IS2
a
r2
b
Y2
Restoration of
full equilibrium
LM2
r3
Y3
c
1. Fixed exchange rates, Fiscal Policy, Low Capital Mobility1. Fixed exchange rates, Fiscal Policy, Low Capital Mobility
![Page 9: ISLMBP Applications to EMU Economics. ISLMBP Applications to EMU Economics 1) Fixed Exchange Rates, Fiscal Policy, Low Capital Mobility 2) Fixed Exchange](https://reader035.vdocuments.mx/reader035/viewer/2022062517/56649f165503460f94c2c9fd/html5/thumbnails/9.jpg)
2. Fixed exchange rates, Fiscal Policy, High Capital Mobility2. Fixed exchange rates, Fiscal Policy, High Capital Mobility
O
Y
BP
LM
IS
r1
Y1
a
![Page 10: ISLMBP Applications to EMU Economics. ISLMBP Applications to EMU Economics 1) Fixed Exchange Rates, Fiscal Policy, Low Capital Mobility 2) Fixed Exchange](https://reader035.vdocuments.mx/reader035/viewer/2022062517/56649f165503460f94c2c9fd/html5/thumbnails/10.jpg)
O
Y
BP
LM1
IS1
r1
Y1
An expansionary fiscal policyAn expansionary fiscal policy
IS2
a
r2
Y2
b
2. Fixed exchange rates, Fiscal Policy, High Capital Mobility2. Fixed exchange rates, Fiscal Policy, High Capital Mobility
![Page 11: ISLMBP Applications to EMU Economics. ISLMBP Applications to EMU Economics 1) Fixed Exchange Rates, Fiscal Policy, Low Capital Mobility 2) Fixed Exchange](https://reader035.vdocuments.mx/reader035/viewer/2022062517/56649f165503460f94c2c9fd/html5/thumbnails/11.jpg)
O
r
Y
BP
LM1
IS1
a
r1
Y1
IS2
r2
b
Y2
2. Fixed exchange rates, Fiscal Policy, High Capital Mobility2. Fixed exchange rates, Fiscal Policy, High Capital Mobility
![Page 12: ISLMBP Applications to EMU Economics. ISLMBP Applications to EMU Economics 1) Fixed Exchange Rates, Fiscal Policy, Low Capital Mobility 2) Fixed Exchange](https://reader035.vdocuments.mx/reader035/viewer/2022062517/56649f165503460f94c2c9fd/html5/thumbnails/12.jpg)
O
r
Y
BP
LM1
IS1
ar1
Y1
IS2
r2
b
Y2
Restoration of
full equilibrium
LM2
r3
Y3
c
2. Fixed exchange rates, Fiscal Policy, High Capital Mobility2. Fixed exchange rates, Fiscal Policy, High Capital Mobility
![Page 13: ISLMBP Applications to EMU Economics. ISLMBP Applications to EMU Economics 1) Fixed Exchange Rates, Fiscal Policy, Low Capital Mobility 2) Fixed Exchange](https://reader035.vdocuments.mx/reader035/viewer/2022062517/56649f165503460f94c2c9fd/html5/thumbnails/13.jpg)
O
r
Y
BP
LM1
IS
ar1
Y1
An expansionary monetary policyAn expansionary monetary policy
3. Fixed exchange rates, Monetary Policy, High Capital Mobility 3. Fixed exchange rates, Monetary Policy, High Capital Mobility
![Page 14: ISLMBP Applications to EMU Economics. ISLMBP Applications to EMU Economics 1) Fixed Exchange Rates, Fiscal Policy, Low Capital Mobility 2) Fixed Exchange](https://reader035.vdocuments.mx/reader035/viewer/2022062517/56649f165503460f94c2c9fd/html5/thumbnails/14.jpg)
O
r
Y
BP
LM1
IS
ar1
Y1
An expansionary monetary policyAn expansionary monetary policy
LM2
Y2
r2
b
3. Fixed exchange rates, Monetary Policy, High Capital Mobility 3. Fixed exchange rates, Monetary Policy, High Capital Mobility
![Page 15: ISLMBP Applications to EMU Economics. ISLMBP Applications to EMU Economics 1) Fixed Exchange Rates, Fiscal Policy, Low Capital Mobility 2) Fixed Exchange](https://reader035.vdocuments.mx/reader035/viewer/2022062517/56649f165503460f94c2c9fd/html5/thumbnails/15.jpg)
O
r
Y
BP
LM1
IS
ar1
Y1
An expansionary monetary policyAn expansionary monetary policy
Y2
LM2
r2
b
3. Fixed exchange rates, Monetary Policy, High Capital Mobility 3. Fixed exchange rates, Monetary Policy, High Capital Mobility
![Page 16: ISLMBP Applications to EMU Economics. ISLMBP Applications to EMU Economics 1) Fixed Exchange Rates, Fiscal Policy, Low Capital Mobility 2) Fixed Exchange](https://reader035.vdocuments.mx/reader035/viewer/2022062517/56649f165503460f94c2c9fd/html5/thumbnails/16.jpg)
O
r
Y
BP
LM1
IS
ar1
Y1
An expansionary monetary policyAn expansionary monetary policy
Y2
LM2
r2
bFull equilibrium
is restoredback at point a
ISLMBP analysis: fixed exchange ratesISLMBP analysis: fixed exchange rates
![Page 17: ISLMBP Applications to EMU Economics. ISLMBP Applications to EMU Economics 1) Fixed Exchange Rates, Fiscal Policy, Low Capital Mobility 2) Fixed Exchange](https://reader035.vdocuments.mx/reader035/viewer/2022062517/56649f165503460f94c2c9fd/html5/thumbnails/17.jpg)
• Analysis under free-floating rates
– effects of exchange rate changes on the BP curve
• Analysis under free-floating rates
– effects of exchange rate changes on the BP curve
THE OPEN ECONOMY AND ISLM ANALYSISTHE OPEN ECONOMY AND ISLM ANALYSIS
![Page 18: ISLMBP Applications to EMU Economics. ISLMBP Applications to EMU Economics 1) Fixed Exchange Rates, Fiscal Policy, Low Capital Mobility 2) Fixed Exchange](https://reader035.vdocuments.mx/reader035/viewer/2022062517/56649f165503460f94c2c9fd/html5/thumbnails/18.jpg)
O
r
Y
BP
SURPLUS
Movements in the BP curveMovements in the BP curve
Appreciation
![Page 19: ISLMBP Applications to EMU Economics. ISLMBP Applications to EMU Economics 1) Fixed Exchange Rates, Fiscal Policy, Low Capital Mobility 2) Fixed Exchange](https://reader035.vdocuments.mx/reader035/viewer/2022062517/56649f165503460f94c2c9fd/html5/thumbnails/19.jpg)
O
r
Y
BP
DEFICIT
Depreciation
Movements in the BP curveMovements in the BP curve
![Page 20: ISLMBP Applications to EMU Economics. ISLMBP Applications to EMU Economics 1) Fixed Exchange Rates, Fiscal Policy, Low Capital Mobility 2) Fixed Exchange](https://reader035.vdocuments.mx/reader035/viewer/2022062517/56649f165503460f94c2c9fd/html5/thumbnails/20.jpg)
O
r
Y
BP
LM
IS1
Y1
An expansionary fiscal policyAn expansionary fiscal policy
IS2
Y2
r1
r2
b
a
ISLMBP analysis: floating exchange ratesISLMBP analysis: floating exchange rates
![Page 21: ISLMBP Applications to EMU Economics. ISLMBP Applications to EMU Economics 1) Fixed Exchange Rates, Fiscal Policy, Low Capital Mobility 2) Fixed Exchange](https://reader035.vdocuments.mx/reader035/viewer/2022062517/56649f165503460f94c2c9fd/html5/thumbnails/21.jpg)
O
r
Y
BP
LM
IS1
Y1
An expansionary fiscal policyAn expansionary fiscal policy
IS2
a
Y2
r1
r2
b
ISLMBP analysis: floating exchange ratesISLMBP analysis: floating exchange rates
![Page 22: ISLMBP Applications to EMU Economics. ISLMBP Applications to EMU Economics 1) Fixed Exchange Rates, Fiscal Policy, Low Capital Mobility 2) Fixed Exchange](https://reader035.vdocuments.mx/reader035/viewer/2022062517/56649f165503460f94c2c9fd/html5/thumbnails/22.jpg)
O
r
Y
BP
LM
IS1
Y1
An expansionary fiscal policyAn expansionary fiscal policy
IS2
a
Y2
r1
r2
b
ISLMBP analysis: floating exchange ratesISLMBP analysis: floating exchange rates
![Page 23: ISLMBP Applications to EMU Economics. ISLMBP Applications to EMU Economics 1) Fixed Exchange Rates, Fiscal Policy, Low Capital Mobility 2) Fixed Exchange](https://reader035.vdocuments.mx/reader035/viewer/2022062517/56649f165503460f94c2c9fd/html5/thumbnails/23.jpg)
O
r
Y
BP1
LM
IS1
Y1
An expansionary fiscal policyAn expansionary fiscal policy
IS2
a
Y2
r1
r2
b
Full equilibrium isrestored at point c
BP2
IS3
Y3
r3
c
ISLMBP analysis: floating exchange ratesISLMBP analysis: floating exchange rates
![Page 24: ISLMBP Applications to EMU Economics. ISLMBP Applications to EMU Economics 1) Fixed Exchange Rates, Fiscal Policy, Low Capital Mobility 2) Fixed Exchange](https://reader035.vdocuments.mx/reader035/viewer/2022062517/56649f165503460f94c2c9fd/html5/thumbnails/24.jpg)
O
r
Y
LM
BP1
IS1
Y1
An expansionary fiscal policy:An expansionary fiscal policy:BPBP curve steeper than curve steeper than LMLM curve curve
ar1
IS2
Y2
r2b
ISLMBP analysis: floating exchange ratesISLMBP analysis: floating exchange rates
![Page 25: ISLMBP Applications to EMU Economics. ISLMBP Applications to EMU Economics 1) Fixed Exchange Rates, Fiscal Policy, Low Capital Mobility 2) Fixed Exchange](https://reader035.vdocuments.mx/reader035/viewer/2022062517/56649f165503460f94c2c9fd/html5/thumbnails/25.jpg)
O
r
Y
LM
BP1
IS1
Y1
An expansionary fiscal policy:An expansionary fiscal policy:BPBP curve steeper than curve steeper than LMLM curve curve
a
Y2
r1
r2b
IS2
ISLMBP analysis: floating exchange ratesISLMBP analysis: floating exchange rates
![Page 26: ISLMBP Applications to EMU Economics. ISLMBP Applications to EMU Economics 1) Fixed Exchange Rates, Fiscal Policy, Low Capital Mobility 2) Fixed Exchange](https://reader035.vdocuments.mx/reader035/viewer/2022062517/56649f165503460f94c2c9fd/html5/thumbnails/26.jpg)
O
r
Y
LM
BP1
IS1
Y1
An expansionary fiscal policy:An expansionary fiscal policy:BPBP curve steeper than curve steeper than LMLM curve curve
a
Y2
r1
r2b
IS2
ISLMBP analysis: floating exchange ratesISLMBP analysis: floating exchange rates
![Page 27: ISLMBP Applications to EMU Economics. ISLMBP Applications to EMU Economics 1) Fixed Exchange Rates, Fiscal Policy, Low Capital Mobility 2) Fixed Exchange](https://reader035.vdocuments.mx/reader035/viewer/2022062517/56649f165503460f94c2c9fd/html5/thumbnails/27.jpg)
O
r
Y
LM
BP1
IS1
Y1
An expansionary fiscal policy:An expansionary fiscal policy:BPBP curve steeper than curve steeper than LMLM curve curve
IS3
a
Y2
r1
r2b
BP2
IS2
Y3
r3c
Full equilibrium isachieved at point c
ISLMBP analysis: floating exchange ratesISLMBP analysis: floating exchange rates
![Page 28: ISLMBP Applications to EMU Economics. ISLMBP Applications to EMU Economics 1) Fixed Exchange Rates, Fiscal Policy, Low Capital Mobility 2) Fixed Exchange](https://reader035.vdocuments.mx/reader035/viewer/2022062517/56649f165503460f94c2c9fd/html5/thumbnails/28.jpg)
O
r
Y
LM1
IS1
Y1
An expansionary monetary policyAn expansionary monetary policy
a
Y2
r1
r2
BP1
LM2
b
ISLMBP analysis: floating exchange ratesISLMBP analysis: floating exchange rates
![Page 29: ISLMBP Applications to EMU Economics. ISLMBP Applications to EMU Economics 1) Fixed Exchange Rates, Fiscal Policy, Low Capital Mobility 2) Fixed Exchange](https://reader035.vdocuments.mx/reader035/viewer/2022062517/56649f165503460f94c2c9fd/html5/thumbnails/29.jpg)
O
r
Y
LM1
IS1
Y1
An expansionary monetary policyAn expansionary monetary policy
a
Y2
r1
r2 b
The balance of paymentsdeficit causes the BP line
to shift downward
BP1
LM2
ISLMBP analysis: floating exchange ratesISLMBP analysis: floating exchange rates
![Page 30: ISLMBP Applications to EMU Economics. ISLMBP Applications to EMU Economics 1) Fixed Exchange Rates, Fiscal Policy, Low Capital Mobility 2) Fixed Exchange](https://reader035.vdocuments.mx/reader035/viewer/2022062517/56649f165503460f94c2c9fd/html5/thumbnails/30.jpg)
O
r
Y
LM1
IS1
Y1
An expansionary monetary policyAn expansionary monetary policy
a
Y2
r1
r2 b
The depreciationcauses the IS curveto shift to the right
BP1
LM2
ISLMBP analysis: floating exchange ratesISLMBP analysis: floating exchange rates
![Page 31: ISLMBP Applications to EMU Economics. ISLMBP Applications to EMU Economics 1) Fixed Exchange Rates, Fiscal Policy, Low Capital Mobility 2) Fixed Exchange](https://reader035.vdocuments.mx/reader035/viewer/2022062517/56649f165503460f94c2c9fd/html5/thumbnails/31.jpg)
O
r
Y
BP2
LM1
IS1
Y1
An expansionary monetary policyAn expansionary monetary policy
a
Y2
r1
r2 b Full equilibrium isrestored at point c
BP1
IS2
Y3
r3
LM2
c
ISLMBP analysis: floating exchange ratesISLMBP analysis: floating exchange rates