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    Amanda Novriwani Saragih
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    1) The document discusses the assumptions of economic models developed by Mundell and Fleming regarding flexible and fixed exchange rates under fiscal and monetary policy. 2) Under flexible exchange rates, expansionary monetary policy increases money supply and decreases interest rates, leading to currency depreciation. Expansionary fiscal policy increases domestic output but the effect on the balance of payments is ambiguous. 3) Under fixed exchange rates, monetary policy is less powerful while fiscal policy is more effective at stimulating output. The effectiveness of both policies depends on capital mobility sensitivity to interest rates.

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    1) The document discusses the assumptions of economic models developed by Mundell and Fleming regarding flexible and fixed exchange rates under fiscal and monetary policy. 2) Under flexible exchange rates, expansionary monetary policy increases money supply and decreases interest rates, leading to currency depreciation. Expansionary fiscal policy increases domestic output but the effect on the balance of payments is ambiguous. 3) Under fixed exchange rates, monetary policy is less powerful while fiscal policy is more effective at stimulating output. The effectiveness of both policies depends on capital mobility sensitivity to interest rates.

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    2 views1 page

    Cheat Sheet

    Uploaded by

    Amanda Novriwani Saragih
    1) The document discusses the assumptions of economic models developed by Mundell and Fleming regarding flexible and fixed exchange rates under fiscal and monetary policy. 2) Under flexible exchange rates, expansionary monetary policy increases money supply and decreases interest rates, leading to currency depreciation. Expansionary fiscal policy increases domestic output but the effect on the balance of payments is ambiguous. 3) Under fixed exchange rates, monetary policy is less powerful while fiscal policy is more effective at stimulating output. The effectiveness of both policies depends on capital mobility sensitivity to interest rates.

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    of 1

    Mundell – Asumsi: Flexible – Fiscal

    • Perfect Capital Mobility


    • All securities in the system are perfect substitutes
    • Unemployed resources
    • CRTS, Fixed Money Wage
    • Rates → Elastic Supply of
    • Domestic Output
    • Price Level constant
    • Small Economy
    • Interest Rate parity

    FISCAL / MONETER → Fixed

    Flexible ER – Monetary Policy

    Moneter ekspansif → JUB naik →


    Ms naik, r turun
    FISCAL / MONETER → Flexible

    Flemming - Asumsi
    • Taxation and Private Income after Tax berbanding lurus dengan
    National Income
    • Private Expenditure (C+I) berbanding lurus dengan Pendapatan
    setelah pajak dan berbanding terbalik dengan suku bunga
    NFA naik → Ms = NFA + NDA, so Ms naik → r turun • Interest rate berbanding lurus dgn income-velocity of circulation of
    money (ratio pendapatan nasional thdp uang)
    • Neraca perdagangan berbanding terbalik dengan Pengeluaran Dom. Additional
    dan berbanding lurus dengan nilai mata uang dom terhadap asing
    • Neraca Pembayaran pada akun modal varies directly with the rate of
    interest
    Fiskal Ekspansif
    • Increase in income, employment, and output
    • Capital Outflow and Depreciate ER (Increase in Balance of Trade)
    → BoP ambiguous
    • It depends on the capital mobility sensitivity on interest rate.
    Moneter Ekspansif
    • Increase the Money supply and interest rate
    • Stimulate private investment and consumption → Income and
    Output increase
    • Increase current account deficit and Capital Outflow → Depreciate
    ER → restore the BoP
    In General
    • Monetary policy relatively more powerful in Flexible ER but not in
    Flexible ER – Fiscal Policy Fixed ER
    • The effectiveness of monetary and fiscal policy will depend on the
    capital mobility sensitivity on interest rate
    FIXED – MONETER (dY/dM)01

    Fixed ER – Monetary Policy

    Fixed – Fiscal (dY/dS)00

    Flexible – Moneter

    Fixed – Fiscal

    Fiscal policy is effective under fixed ER

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