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    Question

    The Mundell-Fleming framework studies (A) _____ , (B)

    _________ economies in a world with (C) _____ financial markets and (D) _____ capital mobility
    A (A) small; (B) open; (C) integrated; (D) free Correct Answer Incorrect Answer
    B (A) large; (B) open; (C) integrated; (D) free Correct Answer Incorrect Answer
    C (A) small; (B) mercantilist; (C) integrated; (D) free Correct Answer Incorrect Answer
    D (A) large; (B) open; (C) restricted; (D) free Correct Answer Incorrect Answer

    Solution

    The Mundell-Fleming model is based on a very restrictive assumption. It considers a small open economy with perfect capital mobility and integrated financial markets. The model explains the causes of short-run fluctuations in aggregate income in an open economy.

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