Chapter 12 covers a lot of material.
First, it develops the Mundell-Fleming open-economy IS-LM model for a small open economy with perfect capital mobility. The model is used to analyze the effects of fiscal, monetary, and trade policy under floating and flexible exchange rates.
Then, the chapter explores interest rate differentials, or risk premia that arise due to country risk or expected changes in exchange rates. The Mundell-Fleming model is used to analyze the effects of a change in the risk premium. The 1994-95 Mexican Peso Crisis is an important real-world example of this.
The chapter summarizes the debate over fixed vs. floating exchange rates.
Following that discussion, the Mundell-Fleming model is used to derive the aggregate demand curve for a small open economy.
And finally, the chapter discusses how the results it derives would be different in a large open economy.
To reinforce this material, I strongly recommend you to allow a bit of class time for a few in-class exercises (I’ve suggested several in the lecture notes accompanying some of the slides in this presentation), and that you assign a homework consisting of several of the end-of-chapter “Questions for Review” and “Problems and Applications” in the textbook.
Chapter 12 covers a lot of material. First, it develops the Mundell-Fleming open-economy IS-LM model for a small open economy with perfect capital mobility. The model is used to analyze the effects of fiscal, monetary, and trade policy under floating and flexible exchange rates. Then, the chapter explores interest rate differentials, or risk premia that arise due to country risk or expected changes in exchange rates. The Mundell-Fleming model is used to analyze the effects of a change in the risk premium. The 1994-95 Mexican Peso Crisis is an important real-world example of this. The chapter summarizes the debate over fixed vs. floating exchange rates. Following that discussion, the Mundell-Fleming model is used to derive the aggregate demand curve for a small open economy. And finally, the chapter discusses how the results it derives would be different in a large open economy. To reinforce this material, I strongly recommend you to allow a bit of class time for a few in-class exercises (I’ve suggested several in the lecture notes accompanying some of the slides in this presentation), and that you assign a homework consisting of several of the end-of-chapter “Questions for Review” and “Problems and Applications” in the textbook.
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Chapter 12 covers a lot of material.
First, it develops the Mundell-Fleming open-economy IS-LM model for a small open economy with perfect capital mobility. The model is used to analyze the effects of fiscal, monetary, and trade policy under floating and flexible exchange rates.
Then, the chapter explores interest rate differentials, or risk premia that arise due to country risk or expected changes in exchange rates. The Mundell-Fleming model is used to analyze the effects of a change in the risk premium. The 1994-95 Mexican Peso Crisis is an important real-world example of this.
The chapter summarizes the debate over fixed vs. floating exchange rates.
Following that discussion, the Mundell-Fleming model is used to derive the aggregate demand curve for a small open economy.
And finally, the chapter discusses how the results it derives would be different in a large open economy.
To reinforce this material, I strongly recommend you to allow a bit of class time for a few in-class exercises (I’ve suggested several in the lecture notes accompanying some of the slides in this presentation), and that you assign a homework consisting of several of the end-of-chapter “Questions for Review” and “Problems and Applications” in the textbook.
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