×
Log in to StudySoup
Get Full Access to Texas State - Class Notes - Week 9
Join StudySoup for FREE
Get Full Access to Texas State - Class Notes - Week 9

Already have an account? Login here
×
Reset your password

TEXAS STATE / Economics / ECO 3315 / What is explained by the mondell-fleming model?

What is explained by the mondell-fleming model?

What is explained by the mondell-fleming model?

Description

School: Texas State University
Department: Economics
Course: Intermediate Macroeconomics
Term: Fall 2018
Tags: Macroeconomics, IntermediateMacroeconomics, mundellfleming, IScurve, LMcurve, and moneymarkets
Cost: 25
Name: class notes on mundell fleming model
Description: mundell fleming model, the open economy, IS*-LM* curve
Uploaded: 11/12/2018
2 Pages 95 Views 1 Unlocks
Reviews


1 Study SOUT


What is mondell-fleming model?



Revisiting the Open Economy ° Mondell - Fleming Model

> assume a small open economy with perfect Capital mobility

free flow of economic resources

financial

where r * is the world interest rate

1

studySoup

(

IES

rrt => Capital inflows -> supply of loanable funds increases & back torki Also, the exchange rate is going to affect the flow of goods and services => NX = EX-IM -> Nlle)


What is the real exchange rate is?



Remember that the real exchange rate is an

E = e.pro We also discuss several other topics like What is pseudoparticipation?

pt where the e = 8 pesos (foreign

nominal interest rate dollar I currency per In the short run, prices are fixed = Ene s

dollar / if et = dollar appreciates = EX V & IM 7 = NXT


What is flexible exchange rate regimes?



exchange

Study Soup

studySoup

@studySoup

StudySoup

1S*-LMT model (Mundell Fleming Model) Goods Market is* We also discuss several other topics like What are the two types of shorelines?

Y = PE - C+ It (7 NX Y = C(Y-T) + 1 (r*) + G + Nyle)

Study SOUTO

Study Soup

o

adjusts to bring the market in to

equilibrium Money market : LM*

SE

Stug

M = (M) S = (M)2 = L(r*,y) Deniving the shape of the IS* curve

Keynesian Cross

V = E

-PE=C+I+G+AK If you want to learn more check out What is the principle quantum number?

if eq =>dollar appreciates

EXV & TMT NXV PE shifts down =) YV =) e 7 4 V -> IS"curve is downward We also discuss several other topics like Does neuroscience really bear on the truth of theories of moral motivation?

Sloping

NX bat e

-PEI

it yo

studySoup

@

Study Soup

Studysor

StudySoup

Deriving the shape of the LM* curve

money market

Study Soup

rark

Study

ER -----

DMLCrty)

мо

) StudySoup

-

LM*

(real money balance

ady Soup

(@

Notice that y q = DM snitts right = p q => LM curve

is upward sloping

The LM* curve is anchored MY

at this equilibrium between LM &r=rt If you want to learn more check out Define personality disorders.

StudySoup

So if the LM curve shifts left, the LM* would have to shift left too so it can be in equilibrium. If you want to learn more check out What are the three main types of risk?

StudySoup

Coup

StudySoup

@

StudySoup

Example #1: IS-LM* model

Study Sour

SLM

() Study Soup

studySoup

y

LM*

StudySoup

IS*

y

) StudySoup

soup

Y-E

-PE=C+I+G+NY

Study Soup

@

Study Soup

StudySoup

Flexible Exchange Rate Regimes

• The exchange rate is allowed to adjust accordingly to market forecast

Study Sou

Flexible Exchange Rate Regime INITIAL CHANGE: 479

StudySoup

Study Soup

LM

StudySoup

66

1

r=r*

=

r2

@ Study

DM

@stud

-

-

LM*

--

StudySoup

-

if G9 = PE shifts up => 49 So for a given e, the higher y means that the 15* curve shifts

right 2

O

IS*

Loup

Y 2 = 10

Y=E

Since y 9 DM shifts right 2 =>r 1 = movement along LM curve However, the rh leads to Capital inflows => upward pressure one => dollar appreciates => et -> EX & IM1 => NX -> PE shifts down = 4 V =) movement along Is* curve

Since v => Dm shifts left = rt back to ro =) movement along

LM

PE,

10 pE = PE 2

07 10

Studzoup

@Study

@ Stud

Y2 - Y

Yo

@studySoup

StudySoup

Page Expired
5off
It looks like your free minutes have expired! Lucky for you we have all the content you need, just sign up here