Assume a system of flexible exchange rates and perfect capital mobility as well as equilibrium in the goods market, the money market and the balance of payments. Also assume that there is...

Assume a system of flexible exchange rates and perfect capital mobility as well as equilibrium in the goods market, the money market and the balance of payments. Also assume that there is unemployment.

Explain with the aid of a diagram, using the IS/LM/BP analysis, how a small nation can reach the full employment level of income with equilibrium in its balance of payments by applying the appropriate fiscal policy without any monetary policy.