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Suppose a country has imposed controls on all capital flows, and as a result there are...

Suppose a country has imposed controls on all capital flows, and as a result there are no capital account transactions: the balance of payments consists of the current account and changes in the central bank’s foreign exchange reserves.

a. How does the BP curve appear on the IS/LM/BP graph?

b. If there are fixed exchange rates, what is the impact of an expansionary fiscal policy?

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