Nobody downloaded yet

International Economics and Mundell-Fleming Model: Case Study of Brunei and Bhutan - Essay Example

Comments (0) Cite this document
The researcher of this paper explores the Mundell-Fleming model in providing a theoretical rationale for the existence at the current account imbalances experienced by Brunei and Bhutan, following their resolution to join the global financial market. …
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER97.9% of users find it useful
International Economics and Mundell-Fleming Model: Case Study of Brunei and Bhutan
Read TextPreview

Extract of sample "International Economics and Mundell-Fleming Model: Case Study of Brunei and Bhutan"

Download file to see previous pages It is evidently clear from the discussion that the Mundell-Fleming model revolves around the pillars of an open economy including nominal exchange rate and interest rate, and how such relationship determine the income or output of a given economy. With that in mind, economic scholars postulate that no economy can possibly preserve an independent monetary policy in the presence of a financial regime characterized by either fixed exchange rate or free capital movement. As a result, the Mundell-Fleming model ascertains that any attempts to maintain such conflicting financial systems would not survive the dynamic global financial forces. According to Foote, the strength of every economy depends largely on its Gross Domestic Product, nominal money supply and price levels. All these complementary elements are determinant factors in setting the monetary and fiscal policies including financial exchange rates and nominal interest rates. It is, therefore, possible that external forces, such as those presented by the global financial market, are bound to impact on the performance of a local economy, as argued by the proponents of Mundell-Fleming theory. Such include export prospects, foreign investment extrapolations, as well as the liquidity preference in real money demand. In line with modern economic theories, Mundell-Fleming model is based on the concept of IS-curve, where GDP equals the summation of consumption spending, investment, net exports and government spending. Moreover, the model takes into account the LM-curve where high interest rate or low GDP decreases the liquidity preference: M/P = L(i,Y) described by Waelti (2001, p.3). Considering that the supply and demand of money depends on the price levels, and that price levels are determined by GDP and exchange rates, it follows that an increase in exchange rate will lead to decrease in money supply. However, when the exchange rate is fixed, output remains relatively stable (Copeland 2008, p.63). Besides, high exchange rates are generally responsible for increased importation of foreign commodities at the expense of reduced net exports. This translates to higher consumptions spending and less physical investment spending. Thus, an economy with flexible exchange rate is bound to experience increased investment spending and higher income if it lowers its exchange rates in line with global money market demands (Foote 2011, p.17). The reverse is true if the country increases its exchange rate with changes in world economy. In that case, increase in exchange rate decreases net export which, in turn, shifts the planned expenditure downwards. The interaction results in decreased income among small economies that have imperfectly integrated. On the contrary, a fixed exchange rate would mean that a country has to find an alternative to cushion its investment prospects amidst fluctuating global financial activities. As such, reduction in real money demand for domestic currency results in higher expenditures of central bank in buying foreign currencies at the promised fixed rate. In addition, a country will have to trade at a fixed exchange ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
(“International Economics and Mundell-Fleming Model: Case Study of Essay”, n.d.)
Retrieved from
(International Economics and Mundell-Fleming Model: Case Study of Essay)
“International Economics and Mundell-Fleming Model: Case Study of Essay”, n.d.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF International Economics and Mundell-Fleming Model: Case Study of Brunei and Bhutan

Tourism in Bhutan

...not only represent the wishes of the State but also takes into account the views of stake holders like travel managers and tour operators who play an essential part in promoting the tourism of the country (Cooper, 2001). Objectives of the Tourism Industry The main objective of Bhutan’s tourism industry is to generate revenue for the country, publicize the image of Bhutan as a country with a rich eco system, one which has a lot to offer to its tourists from cultural beauty to the epic range of Himalayas and beyond. Another objective of the country’s tourism policy is to play an essential part in development of the country socio economically. The tourism industry in the country has also...
10 Pages(2500 words)Case Study

Lewins Planned Change Model

... Organizational Change: Peppercorn Dining 1. Planned Change 1.A. Lewin’s Planned Change Model The Planned Change Model of Kurt Lewin can be applied to the case of Peppercorn Dining which focuses upon changing the overall organizational environment into a more pleasant place to work for its employees. The first step of the model i.e. “unfreezing” can be applied to the case by surveying the attitudes or the behaviors of all workings staffs of Peppercorn Dining. In order to make Peppercorn Dining a better place to work for, the phase of “unfreezing” would assist the staffs to identify the need for change. Consequently, the “moving to a new level” or the transition phase of the model can be applied to the case by building effective... ...
7 Pages(1750 words)Case Study

Zaras Business Model

...Case study on Zara: Fast Fashion Introduction Inditex of Spain is the owner of Zara and other 5 apparel retailing stores and is located in Galicia. Its net income was on the rise hitting 340 million on revenues of 3,250 million by end of 2001 fiscal year. To meet it global expansion and entrench corporate governance, Inditex issued 26% of its shares to the public through an initial public offering which was oversubscribed. The analysis below looks at Zara’s business model, market selection, entry strategies, and standardization of marketing approach as well as future prospective markets for growth. Suitability of locating Inditex in Galicia (Spain) for the emergence of apparel retailing powerhouse Establishing...
5 Pages(1250 words)Case Study

Sports Economics

...Sports Economics: Critically evaluate the justification behind the new FAI Club licensing system Word Count 522 words Introduction FAI or Football Association of Ireland was born out of different complicated situations with other football clubs in Ireland. Although football has been played in Ireland since the 1860's but the game spread in other areas only in the 1880's, and the Dublin Association Football Club was the first outside Ulster where Football was mainly played. During this time, the Irish Football Association based in Belfast was the governing body. Based on the study regarding the history of football clubs, they found it difficult to promote football throughout the country, thus, the formation of Leinster Football... ...
6 Pages(1500 words)Case Study

Slacks Transformational Process Model

...process and in gathering quality information. In the model of transformational process comprehension is significant because it constitutes the common syntactic space and this is a prerequisite in a successful transformational process. Comprehension is an important factor because the language or syntax devoid any logic that is considered too complicated. Another important factor in the transformation process is the internalization that constitutes the interpretative space and it is part of the major prerequisite. Any information cannot stand alone and they always appeared as personalized and it comes into social context. The information must have the interpretative space having the capacity to synchronize...
8 Pages(2000 words)Case Study

PISCO Model the process of dispensation of their job (Carrell et al 1995). Thus using the PISCO problem solving model going to be highlighted below, the study would attempt to critically analyse the dilemma facing Lael Matthews in selecting the ideal candidate to promote among three managers. Problem According to Edward (1985), the PISCO model is comprised of steps that seek to identify a problem, input to the cause of the problem, solution, choice as well as operational goal of the choice made. In this case, the two major problems facing Lael Matthews include race and gender related issues which are seen as impediments in the efforts by the management in their efforts in appraisals especially for promotional...
6 Pages(1500 words)Case Study

Economics of Construction Industry

...Division, Department of Industry, Science and Resources. "The construction industrys linkages with the economy ." Australian Bureau of Statistics. 2001. (accessed November 20, 2010). Lucas, Robert. Models of Business Cycles. Oxford: Basil Blackwell, 1987. Martin, David. "The Impact of the Construction Industry on Dubai’s Economy." Intelligent Life on the Web. May 28, 2010. (accessed November 20, 2010). Mathews, Robert Charles Oliver. The Business Cycle. Chicago: Chicago University Press, 1959. SparkNotes LLC. "Overview of Macroeconomics:...
8 Pages(2000 words)Case Study


...explain Monsanto’s ability to develop GM herbicide-tolerant crops. A maturity of crops industry is a well-known fact and there is an evident growth of R&D costs, stricter legislation and more approval and support from the government. Moreover, the pricing policy of Monsanto can be explained by the company’s ability to develop Roundup in the post-patent period. Therefore, a fostering of GM products and success of Monsanto can be illustrated in the following way: Roundup is responsible for provision of plants with required herbicides and there is a growth of plants productivity providing a more favorable environment to the crops. As far as we can see, there is a clear strategy of Monsanto developed at different levels (social,...
3 Pages(750 words)Case Study

Healthcare Economics

...Healthcare Economics Affiliation Healthcare Economics Why is it easier to measure the effects of smoking on individual’s healththan it is to measure the effects of anti-smoking campaigns on health? Be sure to discuss the idea of medical care as derived demand. Before we discuss the idea of medical care as a derived demand, someone has to define the word of “Derived demand” properly. The word defines a term in economics, as demand for one good or service happens as a result of the demand of another good or service (Mankiw, 2011). The demand for the former results the production of the second. For example, if coal is demanded that leads to a derived demand of mining, as coal must be mined...
2 Pages(500 words)Case Study


...Business Model Interrogation & Development: Dell Inc. Table of Contents Background 3 Product market and strategies 3 Capital market and strategies 3 Internal organizational structure 4 Current business model 4 Business strategies affecting the organizational structure 4 Evaluation of the current organizational structure 5 Technological Impact 5 Capital structure of Dell 5 Risks of the company 6 Merger and Acquisition 6 Three legged tool (capacity, technology and people) 7 Product market 7 Revenue 7 BCG matrix 8 Porter’s five forces 8 Product life cycle 10 Reviewing of Product Life cycle 12 Recommendation 12 Reference List 13 Background Dell Inc. is a technology company which is...
9 Pages(2250 words)Case Study
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic International Economics and Mundell-Fleming Model: Case Study of Brunei and Bhutan for FREE!

Contact Us