1. VIJAYANAGARA SRI KRISHNA DEVARAYA UNIVERSITY
POST GRADUATE CENTRE NANDIHALLI
NAME :- RAMESHA GORAVARA
DEPARTMENT :- DEPARTMENT OF ECONOMICS
YEAR :- Ist YEAR
SUB :- MONETARY MACRO ECONOMICS
TOPIC :- IS โ LM MODELL IN OPEN ECONOMY
( MUNDELL โ FLEMING MODEL )
MENTOR :- DR NAYAKARA HONNURUSWAMY
CO ORDINATER DEPARTMENT OF ECONOMICS
POST GRADUATE NANDIHALLI
2. Fixed Exchange Rate Perfect Capital Mobility and Fiscal Policy
๏ถ Economy as at Recession
๏ถ Expansionary Fiscal Policy
(GE , Tx , S )
IS Curve shifts rightward
AD and Income Ri ( r1 > r )
Y or Output Capital Inflow ( More $ )
X < M ( Import ) Capital Account Surplus
Current Account Deficit BOP Surplus ( Balance of Payment )
Revaluation
๏ Supply of $ increase and Value of $ Decrease thus
๏ Value of โน increase and then money supply also increase.
๏ RBI sell โน to public and buy $ from public.
๏ LM shifts rightward
4. Fixed Exchange Rate Perfect Capital Mobility and Monetary
Policy
๏ถ Economy as at Recession
๏ถ Expansionary Monetary Policy
( Money Supply )
LM Curve shifts rightward
AD and Income Ri ( r < r1 )
Y or Output Capital Plight or outflow
X < M ( Import ) Capital Account Deficit
Current Account Deficit BOP Deficit ( Balance of Payment )
Devaluation
๏ Demand of $ increase and Value of $ increase thus
๏ Value of โน Decrease and then money supply also increase.
๏ RBI sell $ to public and buy โน from public.
๏ Then Money supply is decrease.
๏ LM Curve shifts backward.
6. Flexible Exchange Rate Perfect Capital Mobility and Fiscal Policy
๏ถ Economy as at Recession
๏ถ Expansionary Fiscal Policy
(GE , Tx , S )
IS Curve shifts rightward
AD and Income Ri ( r1 > r )
Y or Output Capital Inflow ( $ inflow )
X < M ( Import ) Capital Account Surplus
Current Account Deficit BOP Surplus ( Balance of Payment )
Appreciation
๏ Supply of $ increase and Value of $ Decrease thus
๏ Demand of โน increase and Value of โน increase.
๏ RBI sell โน to public and buy $ from public.
๏ IS curve shift backward.
8. Flexible Exchange Rate Perfect Capital Mobility and Monetary Policy
๏ถ Economy as at Recession
๏ถ Expansionary Monetary Policy
( Money Supply )
LM Curve shifts rightward
AD and Income Ri ( r1 < r )
Y or Output Capital Plight or outflow
X < M ( Import ) Capital Account Deficit
Current Account Deficit BOP Deficit ( Balance of Payment )
Depreciation
๏ Value of $ increase and Supply of $ Decrease thus
๏ Money Supply of โน increase and then Value of โน Decrease
๏ This situation Export is increase and Import is decrease
because of goods and services prices are decreases.
๏ IS Curve shifts rightward.