Chapter 13

The IS-LM-BP Approach


This chapter considers economic goals from the point of view of an open economy, in which authorities must consider the impact of policy on balance of trade, capital flows, and exchange rates. It describes the major tools of macroeconomic policy used to achieve macroeconomic equilibrium: fiscal policy and monetary policy. The IS-LM-BP macroeconomic equilibrium diagram, in which IS represents goods market equilibrium, LM represents money market equilibrium, and BP represents balance of payments equilibrium, is examined in detail. Economic equilibrium requires that all three markets be in balance. Monetary and fiscal policy under fixed and floating exchange rates is discussed. The Asian financial crisis is ...

Get International Money and Finance, 9th Edition now with the O’Reilly learning platform.

O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.