In the classical IS-LM-BP model under a FLOATING exchange rate and IMPERFECT capital mobility, an autonomous surge in foreign demand for domestic goods, resulting in an increase in exports, will result in:

Initial Effect: An increase in exports shifts the IS curve to the right because exports are a component of aggregate demand. The increase in exports also affects the BP curve. The immediate effect is an increase in domestic income and the domestic interest rate. Thus: Exports ↑ → Aggregate Demand ↑ → Y ↑ and r ↑ Balance of Payments Effect: Higher domestic income increases imports, while the higher domestic interest rate attracts foreign capital inflows. Under imperfect capital mobility, the combination of trade and capital-account effects can generate a balance of payments surplus. Exchange Rate Adjustment: Under a floating exchange rate regime, a balance of payments surplus creates upward pressure on the domestic currency. Therefore, the domestic currency appreciates. Currency appreciation makes domestic goods relatively more expensive to foreigners and foreign goods relatively cheaper to domestic residents. Consequently, net exports decline. Final Equilibrium: The decline in net exports partially offsets the original export expansion. Therefore, output and the interest rate remain above their initial levels, but the appreciation of the domestic currency moderates the expansionary effect of the original export shock.