In the Mundell-Fleming model,all of the following are true EXCEPT:
A)the intersection of the IS and LM curves determine the equilibrium exchange rate.
B)the BP curves position is determined by the exchange rate.
C)the policy choice between fixed and floating exchange rates shifts the BP curve.
D)the extent of capital mobility determines the slope of the BP curve.
E)all of the above are true.

Question

Quizplus · Accepted Answer

In the Mundell-Fleming model, the intersection of the IS and LM curves determines the equilibrium level of income and interest rates, not the equilibrium exchange rate. The BP curve, along with the IS and LM curves, helps in analyzing the equilibrium but in a different context related to balance of payments.

In the Mundell-Fleming Model,all of the Following Are True EXCEPT