Sign up  |  Log in

Mundell-Fleming modeL explain please

Can someone plz explain THIS

Mundell-Fleming model ?

Also how to rememebr so many scenarios like fixe/flexible/high an low capital flows blush

Study Method

Online Videos - Arif Irfanullah (https://irfanullah.co/)
Mocks/Sectional Tests - Konvexity (www.konvexity.com)
Notes - KaplanSchweser

Never say Die
https://www.youtube.com/watch?v=WTPpXpoF54s

Personalized CFA® exam prep is here! Through this exclusive Analyst Forum offer, you can save 10% on a June 2020 Level II CFA PremiumPlus™ or Premium Study Package. Use promo code KS-AF10 at check out. Offer expires Oct 31, 2019.

This is what I do:

Most important thing to note in Mundell Fleming Model is the assumption that the price level is constant, i.e. inflation is const.

Now consider:

Expansionary Monetary Policy: Interest Rates reduce –> Depreciation

Expansionary Fiscal Policy: 2 effects-

1) Govt Spending Increase –> Interest Rates Increase –> Appreciation

2) Growth Increase –> Inflation Increase –> Depreciation

Now our assumption said that inflation is constant.. So we can cancel out point 2.

So, basically Expansionary/Expansionary Combination –> Depreciation + Appreciation –> Uncertain

Similarly, all the combinations can be derived if you cancel out the point 2 above.

I hope it doesn’t confuse you further..Lol


Above is for High Capital Mobility scenario.

High capital mobility = impact on what happens on interest rates

For example, expansionary monetary = increasing money supply (by lowering rates), if rates fall, currency will depreciate as people move money out ….. Expansionary fiscal = increasing borrowing = higher rates = currency appreciates = impact is not clear (as rates moved in different ways)

Low capital mobility = impact on trade flows, think of what happens to GDP… for example, expansionary fiscal or monetary policy = bank is trying to raise GDP = higher imports (as people have more money) and lower exports = currency depreciates (since there’s less foreign demand for domestic products)

I hope that helps

^ good logic to remember by

Be true

Good explanation.

ext wrote:

High capital mobility = impact on what happens on interest rates

For example, expansionary monetary = increasing money supply (by lowering rates), if rates fall, currency will depreciate as people move money out ….. Expansionary fiscal = increasing borrowing = higher rates = currency appreciates = impact is not clear (as rates moved in different ways)

Low capital mobility = impact on trade flows, think of what happens to GDP… for example, expansionary fiscal or monetary policy = bank is trying to raise GDP = higher imports (as people have more money) and lower exports = currency depreciates (since there’s less foreign demand for domestic products)

I hope that helps

This whole economics is so theoretical that I don’t want to understand any logic. Just memorize tables and hope to never deal with them again.

pffft