The LM Curve for an Open economy
Depending on the type of foreign exchange rate system the country is under, the LM curve for an open economy may be exactly the same as that of a closed economy.
If the economy is on a flexible exchange rate system, the exchange rate will always change to bring about a balance in the BOP. Therefore, under a flexible exchange rate system, there is no effect on the country’s money supply as net currency flows is zero.
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