The IS Curve for an Open economy
In introduction to Economics, we covered the open economy.
We saw that in an open economy, planned expenditure is now
C + I + G + X –M. (X-M) or net exports (NX) is affected by the
domestic country’s income (Y), income in the foreign country (Y*)
as well as the real exchange rate (EP*/P).
When plotted against income, the NX curve is negatively sloped. Why?
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