Answer to Question #238114 in Macroeconomics for reinhold

Question

Explain what the BP curve indicate when it is incorporated in an IS-LM model

Answer 1

Mundell-Fleming model can be viewed as the version of IS-LM model for an open economy.

The model incorporates a BP curve to shows the point at which payments is at equilibrium.

If there is point above the BP curve then balance of payments is said to be surplus while incase of any point being below the BP curve will mean balance of payment is deficit