Question 1 a) Discuss, using graphs, how the BP curve is derived. Which factors determine its...

Question 1

a) Discuss, using graphs, how the BP curve is derived. Which factors determine its slope and how?

b) Ireland is a small open economy can you explain how Irish BP looks like?

c) What are the factors that cause BP curve to shift and how?

d) What is External Imbalance? Show in graphs.

e) Assume that you have fixed exchange rates and a SOE with perfect capital mobility. Assume that you start from an external imbalance (take the case that r in the internal equilibrium is higher than what it should be). Describe the adjustment to external equilibrium.

Solutions

Expert Solution

(a)

Rahul Sunny answered 5 months ago

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