Question: Assume that the price level is fixed in the short

Assume that the price level is fixed in the short run, both at home and abroad. This means that the nominal exchange rate e equals the real exchange rate. Use the Mundell-Flemming model to predict what would happen to aggregate income and the exchange rate under both floating and fixed exchange rates in response to each of the following shocks.
a. A fall in consumer confidence about the future induces consumers to spend less and save more
b. The introduction of a stylish line of Toyotas makes some consumers prefer foreign cars over domestic cars.


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  • CreatedAugust 26, 2013
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