state the world rate of interest we have assumed, Business Law and Ethics

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state the world rate of interest we have assumed

State the world rate of interest

We have assumed that the world rate of interest only falls to equal R₂. At point B, therefore, the domestic rate of interest is below the world rate of interest and so country A experiences an incipient balance of payments deficit. As national income in country A has increased, we assume that it also increases its demand for imports which this is equivalent to an increase in the country B's IS curve shifting from equal IS₀ to equal IS₁.

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