Bp curve

BP Curve
The BP curve is a line drawn on an IS LM curve.
It shows the different combinations of Real Income, and interest rates r at which the balance of payments is in equilibrium.

Having IS, LM, and BP curves that can intersect at one, two, or three points makes understanding the dynamics of the Mundell-Fleming Model a challenge. This application guides you through the following steps.

Exchange rate devaluation (and depreciation) is shown as shifting the IS and BP curves both to the right. This requires that import demand elasticities are large enough to satisfy the Marshall-Lerner Condition.

See also: Equilibrium, Balance of payments, National income, Business cycle, Floating exchange rate