If the short-run aggregate supply curve is assumed to be horizontal and international capital flows are infinitely elastic,then the big,comprehensive model corresponds to which of the following special cases?
A) classical closed economy
B) aggregate demand and aggregate supply
C) IS-LM model
D) Mundell-Fleming with floating exchange rate

Question

Quizplus · Accepted Answer

Mundell-Fleming with floating exchange rate assumes infinitely elastic international capital flows and a horizontal short-run aggregate supply curve. This model analyzes the effects of monetary and fiscal policies on output, exchange rates, and interest rates in an open economy.

If the Short-Run Aggregate Supply Curve Is Assumed to Be