Can someone plz explain THIS
Mundell-Fleming model ?
Also how to rememebr so many scenarios like fixe/flexible/high an low capital flows
Can someone plz explain THIS
Mundell-Fleming model ?
Also how to rememebr so many scenarios like fixe/flexible/high an low capital flows
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-
Govt Spending Increase --> Interest Rates Increase --> Appreciation
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
Good explanation.
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.