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Equilibrium in an Open Economy

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  • Stoyadin Savov

Abstract

Equilibrium in the transition economy of Bulgaria is discussed on the basis of the IS - LM - BP model, and the conditions affecting its variables are identified. An approach in macroeconomic policy is offered, through which it is possible to make the economic mechanism more market-oriented. The factors affecting the formation of the IS, LM and BP curves are analyzed. It is argued that in order to overcome disequilibrium in the economy, a suitable instrument can be the mixed monetary-fiscal policy, suggested by the concept, known as the Mundell-Fleming model. Neither of those policies, applied individually in order to cure the unbalanced economy is able to offer a solution, while the two of them used simultaneously, can produce such an effect that deficiencies in either of them can be offset by the other, since in order to counteract internal disequilibrium, an expansive fiscal policy will be used, and in order to counteract the external disequilibrium - a restrictive monetary policy.

Suggested Citation

  • Stoyadin Savov, 2002. "Equilibrium in an Open Economy," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 7, pages 3-20.
    • Handle: RePEc:bas:econth:y:2002:i:7:p:3-20
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    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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