Mundell-Fleming Model

Use the Mundell-Fleming Model to predict what happens to aggregate income y, the exchange rate e, and the trade balance NX, under both floating and fixed exchange rates in response to each of the following shocks:

a. A fall in consumer confidence about the future induces consumers to spend less and save more.

b. The introduction of a stylish line of Toyotas makes some consumers prefer foreign cars over domestic cars.

The introduction of automatic teller machines reduces the demand for money.