a. The assumption is sometimes made that capital flows are infinitely elastic. What do you think this
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a. The assumption is sometimes made that capital flows are infinitely elastic. What do you think this means? Do you think it is a realistic assumption for a small country? Do you think it is a realistic assumption for a large country?
b. How would you interpret this assumption In the context of the Mundell-Fleming model? (Clue: think of the implications for the gradients of the FF and BP curves)
c. How would this assumption change the model’s conclusions with regard to the effectiveness of monetary and fiscal policy?
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a It means that the slightest rise fall in interest ra...View the full answer
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Related Book For 
Exchange Rates and International Finance
ISBN: 978-0273786047
6th edition
Authors: Laurence Copeland
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