This note gives students a basic understanding of the Mundell-Fleming model, also known as IS-LM-BP model. The model is useful for understanding the effects of capital controls (usually in a fixed currency exchange rate regime) on a country’s macroeconomic variables. It allows the determination of equilibrium income and how that income responds to the economic policies and shocks. It combines the foreign exchange (BP curve), the goods market (IS curve) and the money market (the LM curve … Read More »

This note gives students a basic understanding of the Mundell-Fleming model, also known as IS-LM-BP model. The model is useful for understanding the effects of capital controls (usually in a fixed currency exchange rate regime) on a country’s macroeconomic variables. It allows the determination of equilibrium income and how that income responds to the economic policies and shocks. It combines the foreign exchange (BP curve), the goods market (IS curve) and the money market (the LM curve).
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Melissa M. Appleyard
Source: Darden School of Business
10 pages.
Release date: 01 November, 2001. Prod #: UV4012-PDF-ENG
Effects of economic policy under capital controls HBR case solution

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