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High unemployment and a deficit in its balance of payments

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Suppose that a nation has high unemployment and a deficit in its balance of payments.

Use the IS LM BP analysis to explain how government policy may be used to increase income and restore balance of payments equilibrium. Apply your analysis to the US situation today.

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Solution Summary

The expert examines a nation of high unemployment and a deficit in its balance of payments.

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Answer:

If we look at the graph above we can find that in the zone "c" there is high unemployment and a deficit due to high interest rate. Now in order to tackle this unemployment and deficit and bring the IS-LM-BP at the equilibrium level the government will increase its expenditure and due to this the IS ...

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Jayant Kumar, MBA
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  • MBA, Indian Institute of Finance
  • Bsc, Madras University
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