Which of the following is a feature of the 'IS-LM-BP' or Mundell-Fleming model?
A. It assumes a closed economy
B. It ignores the external sector completely
C. It assumes continuous full employment
D. It analyses the effectiveness of monetary and fiscal policy under different exchange-rate regimes and degrees of capital mobility
Answer: Option D
Solution (By JKSSB Mock Tests)
The Mundell-Fleming model extends the IS-LM framework to an open economy and examines how the effectiveness of monetary and fiscal policy depends on the exchange-rate regime and the degree of capital mobility.
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