Problem
1. Explain carefully why a country settles in equilibrium at the intersection of the IS, LM, and BP curves.
2. Why is domestic monetary policy ineffective in an open economy under a fixed exchange rate regime?
3. What will happen to the relative holdings of foreign and domestic assets by the home country if there is an increase in the money supply and capital is perfectly mobile? Why?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.