Monetary and Fiscal policies

CFA Level II Economics
#1

Could anyone provide an illustrative explanation on the different monetary and fiscal policies and their effects on currency exchange rates?

I am struggling with this and I do not understand the logic behind…

Thanks a lot!

#2

Could you be more specific?

#3

I assume you are talking about the Mundell Fleming model?

Mundell-Fleming Model

  • Model describes how changes in monetary and fiscal policy affect the level of interest rates and economic activity within a country, which in turn leads to changes in the direction and magnitude of trade and capital flows and ultimately to changes in the exchange rates.
  • The degree of capital mobility is critical to the effectiveness of monetary and fiscal policy in an open economy.
  • Model focuses on the short-term effects of these changes.

#4

Important to keep this mind.