ABSTRACT
These three equations uniquely determine the three unknowns in the open economy with flexible exchange rates: Y, -i, and e. It is worth reminding ourselves that an increase in the exchange rate (in this context, a depreciation) must shift both the IS curve and the BP curve to the right. A depreciation also increases YBT; in fact, as we learned in the previous chapter, it does so by more than it shifts the IS curve.
