Mundell – Fleming model a) Assuming perfect capital mobility and flexible exchange rates, explain the impact on the Irish economy of a decrease in interest rates in the U.S. In your answer, clearly indicate the effect on income, rate of interest, balance of payments. (Show your answer with the help of an IS-LM-BP diagram and explain the mechanisms. Consider Ireland a small open economy with flexible exchange rates. b) Is Monetary and Fiscal policy effective in the case of question (a)? Explain with graphs. c) Discuss the notion of unholy trinity.
Mundell – Fleming model a) Assuming perfect capital mobility and flexible exchange rates, explain the impact on the Irish economy of a decrease in interest rates in the U.S. In your answer, clearly indicate the effect on income, rate of interest, balance of payments. (Show your answer with the help of an IS-LM-BP diagram and explain the mechanisms. Consider Ireland a small open economy with flexible exchange rates. b) Is Monetary and Fiscal policy effective in the case of question (a)? Explain with graphs. c) Discuss the notion of unholy trinity.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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1) Mundell – Fleming model
a) Assuming perfect capital mobility and flexible exchange rates, explain the
impact on the Irish economy of a decrease in interest rates in the U.S. In your
answer, clearly indicate the effect on income, rate of interest, balance of
payments. (Show your answer with the help of an IS-LM-BP diagram and
explain the mechanisms. Consider Ireland a small open economy with flexible
exchange rates.
b) Is Monetary and Fiscal policy effective in the case of question (a)? Explain
with graphs.
c) Discuss the notion of unholy trinity.
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