Problem5 ( 20 Points )

Suppose that the current account and capital account sum to a number lessthan zero at the equilibrium real income -nominal interest combination that is at the intersection of the IS-LM curves .

1. Would the IS-LM equilibrium point lie above or below the BP schedule ? explain your reasoning .
2. What type of monetary policy would you recommend to the FED to solve the problem of balance of payment ( i.e Deficit or Surplus )