macro ppt.pptx - presentation Group members \u2022 \u2022 \u2022 \u2022 Azeem Arshad 16281521-010 Afifa Jamil 16281521-024 Namra Nadeem 16281521-003 Kainat Ashraf

macro ppt.pptx - presentation Group members • • • •...

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Group members Azeem Arshad 16281521-010 Afifa Jamil 16281521-024 Namra Nadeem 16281521-003 Kainat Ashraf 16281521-042 ITF 220 Prof.J.Frankel
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Mundell-Fleming model M-F model is extension of the IS/LM model It can also called the IS/LM model in open economy Here, imports and exchange rates additionally considered For exchange rate they are in the form of demestic/ foreign Another assumption is that inflation and its effect ignored ITF 220 Prof.J.Frankel
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shifts Is curve to right Increase in govt. expenditure Decrease in taxes Increase in foregin income Increase in exchange rate LM curve to right- Money supply(as price level assumed to be constant) ITF 220 Prof.J.Frankel
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Perfect capital mobility Situation when foregin interest rate= domestic interest rate initially Also, it assumed that foreign interest rate rf is constant ITF 220 Prof.J.Frankel
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Flexible exchange rate Increase in govt.spending IS shifts right to IS1 Domestic interest rate incease in massive capital flow To invest in US, people convert more dollar Decrease exchange rate Fall in exchange rate domestic goods expensive, export reduce, output falls to initial level ITF 220 Prof.J.Frankel
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Fiscal policy Assume that the govt. stimulates domestic spending by increasing by govt. purchases or by cutting taxes Expansionary fiscal policy increase planned expenditures, it shift the IS* curve to right.
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