If the short-run aggregate supply curve is assumed to be horizontal and international capital flows are infinitely elastic, then the big, comprehensive model in the appendix to Chapter 14 corresponds to which of the following special cases?
A)classical closed economy
B)aggregate demand and aggregate supply
C)IS-LM model
D)Mundell-Fleming model with floating exchange rate

Question

Quizplus · Accepted Answer

The Mundell-Fleming model with a floating exchange rate assumes perfect capital mobility (infinitely elastic international capital flows) and a horizontal short-run aggregate supply curve, which aligns with the conditions given in the question.

If the Short-Run Aggregate Supply Curve Is Assumed to Be