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Consider an open economy with a flexible exchange rate. Let IS stand for the product market equilibrium condition, LM for the financial market equilibrium condition,

Consider an open economy with a flexible exchange rate. Let IS stand for the product market equilibrium condition, LM for the financial market equilibrium condition, and IP for the interest parity condition.

Explain in words why the 3 curves in the ISLMIP diagram have their particular slopes. (4 marks)

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