Chapter 5
Mundell-Fleming Model
Questions
Multiple Choice Questions
1. Mundell-Fleming model is concerned with
(a) Internal stability
(b) External stability
(c) Both of them
Answer: (b) External stability
2.Mundell-Fleming model assumes that capital is
(a) Perfectly Mobile
(b) Imperfectly Mobile
(c) Perfectly immobile
Answer: (a) Perfectly Mobile
3. The Mundell-Fleming model assigns the monetary policy to
(a) Internal equilibrium
(b) External equilibrium
(c) Both of them
Answer: (b) External equilibrium
4. About exchange rate, the Mundell-Fleming model involves
(a) Static expectations
(b) Dynamic expectations
(c) Neither of them
Answer: (a) Static expectations
Very Short Answer Type Questions
1. Define internal balance.
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2. What is meant by external equilibrium?
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3. How does Mundell-Fleming model assign economic policies?
Answer:
4. How do asset markets affect exchange rate?
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5. In what way expectations influence the rate of exchange?
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6. What is interest-parity theorem?
Answer:
Short Answer Type Questions
1. What are the assumptions of Mundell-Fleming model ?
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2. Explain briefly the Mundell-Fleming model.
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3. How does Mundell-Fleming model assign monetary and fiscal policies ?
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4. How do variations in rate of interest can affect current account ?
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Long Answer Type Questions
1. Explain clearly the Mundell-Fleming for the appropriate use of economic policies.
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2. What are the objections raised against the Mundell- Fleming model ?
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3. Analyse the inter-relations among asset market, expectations and exchange rate.
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Very Long Answer Type Questions
1. Critically examine the Mundell-Fleming model.
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2. Discuss the role of changes in assets markets and expectations in the determination of exchange rates and payments equilibrium.
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3. Explain the neo-classical version of the Mundell-Fleming model.
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