The BP curve

The BP curve

In a closed economy we did not have to be concerned about what was happening in the rest of the world. For example, when the domestic economy adopted an expansionary fiscal policy, that
would have caused the IS curve to shift right resulting in an increase in interest rate and output.

Similarly, if an expansionary monetary policy was adopted, that would have shifted the LMcurve to the right resulting in a decrease in interest rate and an increase in output.