With imperfect capital mobility, the BP curve slopes upward because, starting from a Given balance-of-payments equilibrium position, a rise in national income will tend to Cause a __________, which must be counteracted by a rise in the interest rate in order to Cause a __________ that will restore BOP equilibrium.

Question

Quizplus · Accepted Answer

With imperfect capital mobility, a rise in national income tends to increase imports, leading to a balance of payments (BOP) deficit. To counteract this, interest rates must rise to attract short-term financial capital inflows, restoring BOP equilibrium.

With Imperfect Capital Mobility, the BP Curve Slopes Upward Because