The Mundell-Fleming model assumes that:
A) prices are flexible, whereas the IS-LM model assumes that prices are fixed.
B) prices are fixed, whereas the IS-LM model assumes that prices are flexible.
C) as in the IS-LM model, prices are fixed.
D) as in the IS-LM model, prices are flexible.

Question

Quizplus · Accepted Answer

The Mundell-Fleming model, like the IS-LM model, assumes that prices are fixed. This assumption allows the model to focus on the short-term effects of fiscal and monetary policy in an open economy.

The Mundell-Fleming Model Assumes That