The Mundell-Fleming Model adds a balance of payments equilibrium condition (and a BP curve) to an IS-LM Model. This extends the closed economy IS/LM framework to allow discussion of the interplay between monetary policy and exchange rate policy. In particular, the model emphasizes the differences between fixed and floating exchange rates.
Movie: Imperfect Capital Mobility,
Fiscal Policy, Fixed Rates.
Having IS, LM, and BP curves that can intersect at one, two, or three points makes understanding the dynamics of the Mundell-Fleming Model a challenge. This application guides you through the following steps. By repeating the various possibilities, you will come to understand the model.
1. Determine capital mobility
2. Find the equilibrium and draw the curves
3. Pick a policy (choose one)
4. Check the trade balance
5. Final Equilibrium (choose one)
6. Find the equilibrium and draw the curves
Classic Economic Models
Overview of Macro Models
Overview of Micro Models