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      Question

      The slope of the BP curve is (MPM + MPS)/φ. With MPM =

      0.12, MPS = 0.18, φ = 0.6, following an autonomous increase in exports ΔX = 50, which describes the BP curve shift?
      A BP curve shifts leftward (downward) by ΔY = ΔX/MPM ≈ 417 units Correct Answer Incorrect Answer
      B BP curve shifts rightward (downward) by ΔY = ΔX/MPM ≈ 416.7 units, as higher export income improves the current account, allowing higher income at the same interest rate Correct Answer Incorrect Answer
      C BP curve rotates clockwise, becoming steeper Correct Answer Incorrect Answer
      D BP curve shifts rightward by ΔY = ΔX/(MPM + MPS) = 50/0.30 ≈ 167 units Correct Answer Incorrect Answer

      Solution

      An autonomous improvement in the current account (ΔX) shifts the BP curve RIGHTWARD — at every interest rate, a higher level of income is consistent with BOP equilibrium (improved current account can absorb more import leakage). Horizontal shift = ΔX/MPM = 50/0.12 ≈ 416.7. Only MPM (not MPS) drains the current account when income rises — MPS leaks to saving, not imports. Note: Trap: Option (D) uses (MPM + MPS) = 0.30 in the denominator — that is the SLOPE formula numerator, not the shift formula. The shift uses MPM alone.

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