State the world rate of interest

We have assumed that the world rate of interest only falls to equal R₂. At point B, therefore, the domestic rate of interest is below the world rate of interest and so country A experiences an incipient balance of payments deficit. As national income in country A has increased, we assume that it also increases its demand for imports which this is equivalent to an increase in the country B's IS curve shifting from equal IS₀ to equal IS₁.