If the short-run aggregate supply curve is assumed to be horizontal and international capital flows are infinitely elastic, then the mother of all models 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 that the short-run aggregate supply curve is horizontal and that international capital flows are infinitely elastic. Therefore, the mother of all models in the Appendix to Chapter 14 corresponds to this special case.

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