BP curve

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A curve depicting balance of payments equilibrium in the ISLM model. The BP curve is drawn on the same diagram as the IS and LM curves and shows combinations of Y (gross domestic product) and r (the interest rate) at which the overall balance of payments is in equilibrium. This means that the current and capital account balances of payments sum to zero. As higher Y tends to produce a current account deficit, and higher r tends to produce a capital account surplus, the BP curve is upward sloping. If international capital mobility is high, the BP curve is flatter than the LM curve.

Subjects: Economics.

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