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Non-Tech : Deflation -- Ignore unavailable to you. Want to Upgrade?

To: Ilaine who wrote (244)	1/23/2004 10:46:36 PM
From: JF Quinnelly	Respond to of 621

Mundell Fleming a problem? I doubt it. Increased government spending either shifts the IS curve right and raises the interest rate, or the IS curve and the interest rate remain unchanged while the exchange rate lowers and the dollar strengthens. Increased money supply moves the LM curve right, and lowers the interest rate. Right now that appears to be the dominant effect. The FE curve crosses the IS-LM curves at their point of intersection, by definition. The increase in the money supply shifts the IS-LM intersection to the right, the exchange rate increases, and the dollar weakens. fgn.unisg.ch If the Fed chose not to flood the world with new dollars then interest rates would go up and the dollar would strengthen.