TABLE 12-1 The Mundell–Fleming Model: Summary of Policy Effects and the Impact of Events in the Rest of the World
EXCHANGE-RATE REGIME
FLOATING FIXED
IMPACT ON:
Policy/World Event Y e NX Y e NX
Fiscal expansion 0 ↑ ↓ ↑ 0 0
Monetary expansion ↑ ↓ ↑ 0 0 0
Import restriction 0 ↑ 0 ↑ 0 ↑
Export restriction 0 ↓ 0 ↓ 0 ↓
Higher interest rates ↑ ↓ ↑ ↓ 0 0

Note: This table shows the direction of impact of various economic policies on income Y, the exchange rate e, and the trade balance NX. A “↑” indicates that the variable increases; a “↓” indicates that it decreases; a “0” indicates no effect. Remember that the exchange rate is defined as the amount of foreign currency per unit of domestic currency (for example, $0.90 (U.S.)/Canadian dollar).