Question

Mark correct statements about the FE curve in the Mundell-Fleming model.
(a) With perfectly mobile capital, the FE curve moves parallely up or down only if the world interest rate changes.
(b) The FE curve depicts all combinations of the nominal exchange rate and GDP that guarantee an equilibrium on the FE market.
(c) The FE curve is obtained using the condition CA + CP = 0.
(d) If capital flows are fully restricted, the FE curve is vertical.

Answer 1

c, d