Discuss the effectiveness of monetary and fiscal policy in a Mundell-Flaming model with floating exchange rates...

Discuss the effectiveness of monetary and fiscal policy in a Mundell-Flaming model with floating exchange rates and perfect capital mobility.

Expert Solution

Answer) Perfect capital mobility (PCM) :- No restriction on movement of capital from one country to another.

1) Under PCM & floating exchange rate monetary policy is fully effective.

2) Under PCM & floating exchange rate fiscal policy is fully ineffective.

Note: Where iF - interest in foreign

Rahul Sunny answered 7 months ago

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