In the Mundell-Fleming model, expectations that a currency will lose value in the future will cause the current exchange rate to:
A) increase in the present.
B) decrease in the present.
C) remain constant in the present.
D) decrease only in the future.

Question

Quizplus · Accepted Answer

In the Mundell-Fleming model, expectations of future currency depreciation lead to an increase in demand for foreign currency and a decrease in demand for domestic currency in the present. This causes the exchange rate to decrease in the present.

In the Mundell-Fleming Model, Expectations That a Currency Will Lose