In the Mundell-Fleming model with perfect capital mobility,the domestic interest rates are determined by
A)monetary policy.
B)the IS and LM curves.
C)domestic savings and investment.
D)budget deficits.
E)none of the above.

Question

Quizplus · Accepted Answer

In the Mundell-Fleming model with perfect capital mobility, domestic interest rates are determined by the world interest rate, not by domestic factors such as monetary policy, the IS and LM curves, domestic savings and investment, or budget deficits. This is because with perfect capital mobility, any difference between domestic and world interest rates would immediately be eliminated by capital flows.

In the Mundell-Fleming Model with Perfect Capital Mobility,the Domestic Interest