The IS/LM/BP analysis suggests that an external real sector shock, such as a rise in national income abroad will cause, under fixed exchange rates, a __________ shift in a Home country's BP curve (assuming that short-term financial capital is not perfectly Mobile), a __________ in the home country's balance of payments, and __________ in The home country's national income.
A) rightward; surplus; an increase
B) rightward; deficit; a decrease
C) rightward; surplus; a decrease
D) leftward; deficit; a decrease

Question

Quizplus · Accepted Answer

A rise in national income abroad increases demand for the home country's exports, improving the balance of payments and increasing national income, which shifts the BP curve rightward under fixed exchange rates.

The IS/LM/BP Analysis Suggests That an External Real Sector Shock