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    The Mundell-Fleming Economic Model: A crucial model for understanding international economics
    The Mundell-Fleming Economic Model: A crucial model for understanding international economics
    The Mundell-Fleming Economic Model: A crucial model for understanding international economics
    Ebook62 pages46 minutes

    The Mundell-Fleming Economic Model: A crucial model for understanding international economics

    By 50MINUTES

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    About this ebook

    Achieving macroeconomic equilibrium

    This book is a practical and accessible guide to understanding the Mundell-Fleming model, providing you with the essential information and saving time. 

    In 50 minutes you will be able to: 

       •  Learn about the IS-LM model that the Mundell-Fleming is based on and how each of the three curves of the model graph are formed, as well as how to interpret them
       • Analyze different exchange rate regimes and the effect they have on production, income and interest rates 
       • Understand the effectiveness of budgetary, fiscal and monetary policies and how they interact with exchange rates

    ABOUT 50MINUTES.COM | Economic Culture

    50MINUTES.COM provides the tools to quickly understand the main theories and concepts that shape the economic world of today. Our publications are easy to use and they will save you time. They provide elements of theory and case studies, making them excellent guides to understand key concepts in just a few minutes. They are the starting point for readers to develop their skills and expertise.
    LanguageEnglish
    Publisher50Minutes.com
    Release dateSep 17, 2015
    ISBN9782806269652
    The Mundell-Fleming Economic Model: A crucial model for understanding international economics

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      Book preview

      The Mundell-Fleming Economic Model - 50MINUTES

      The Mundell-Fleming economic model

      Key information

      Names: Mundell-Fleming model, IS-LM model for an open economy, IS-LM-BoP model, IS-LM-BP model.

      Uses: this model is at the heart of international macroeconomics as it includes foreign trade and capital movements within a closed economy (national scale). It is:

      the basic model of the IMF (International Monetary Fund);

      the theoretical argument in favour of establishing a European monetary union;

      the general framework of economic policy within the Eurozone.

      Why is it successful? The Mundell-Fleming model:

      helps us to understand how the choice between a fixed or variable exchange rate affects the efficiency of economic policies in an economy that is open to international trade;

      generalises Keynesian theory in the case of an open economy;

      allows us to anticipate the effects of the removal of customs duties and the explosion of capital markets, as well as the international transmission of economic monetary shocks;

      shows how a country can use budgetary and monetary policies to simultaneously achieve balance both within its borders and outside of them;

      states that both monetary policy with flexible exchange rates and fiscal policy with fixed exchange rates are effective;

      defends the idea that the European Central Bank must be independent and responsible for price stability so as not to flood the money market, which would induce a loss in value.

      Key words:

      Balance of payments (BP): balance sheet of all movements of goods and services, capital and currencies across the borders of a country over a specific period.

      Central rate: the official exchange rate of one currency against another. In the EMS (European Monetary System), the central rate is the official parity of a currency as determined by the ECU (European Currency Unit).

      Currency: all means of payment used in a country.

      European Monetary System (EMS): a system based on the principle of stable exchange rates between the currencies of the member countries of the EMS. This system was based on the ECU (European Currency Unit, a basket of the currencies of the countries involved, firstly those in the European Economic Community (EEC), then those in the European Union before the adoption of the euro). It was approved during the European summit in Bremen in July

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