If price expectations are assumed to be correct,money demand is proportional to income,and there are no international capital flows,then the big,comprehensive model corresponds to which of the following special cases?
A) classical closed economy
B) classical open economy
C) IS-LM model
D) Mundell-Fleming with floating exchange rate

Question

Quizplus · Accepted Answer

The assumptions given in the question correspond to the basic classical theory of a closed economy where money demand is proportional to income and prices are stable. The model does not consider international capital flows or exchange rate interactions, making it a closed economy model. The IS-LM and Mundell-Fleming models incorporate these factors.

If Price Expectations Are Assumed to Be Correct,money Demand Is