Page 260 - DECO402_Macro Economics

Unit-28: Mundell Model

if adjustment of policies is done by examination and defects relating to order, then it will Notes
be a complex process and under some circumstances instead of taking in the direction of
balance, it may take far from it."

Self Assessment

State whether the following statements are True or False:
7. In the objective of external balance allotment of monetary policy and in the objective of
internal balance allotment of fiscal policy must be done.
8. It is possible to finance continuous deficit by capital momentum.
9. Prescribed policy mixture cannot be successful in correcting current account deficit.
10. There is a possibility of inter conflict between the prescribed policy mixes of governments
of various countries.

28.2 Summary

y In reality, Mundell contends for a rational mix of monetary and Fiscal policy. In zone II and
IV there is no disproportion in joint use of monetary and fiscal policy. In zone II both policies
must be restrictive and in zone IV, both policies must be expansive. In rest of the two zones
monetary and fiscal policies must be definitely mixed for achieving both the targets together.
According to Mundell, when monetary policy is combined with objectives of external balance
and Fiscal policy is combined with objective of internal balance, and then both the objectives
are met.

28.3 Keywords

y Surplus—Excess.
y Conflict—Internal struggle.

28.4 Review Questions

1. What do you understand by “Mundell’s Model”?
2. Describe Fiscal Monetary policy for internal and external balance.

Answers: Self Assessment
1. work 2. successful 3. (a) 4. (b)
5. (a) 6. (a) 7. True 8.False
9. True 10. True

28.5 Further Readings

Books 1. Macroeconomics: Theory and Policy— H.L Ahuja, S. Chand Publisher, 2010
2. Macroeconomics: Economic Growth, Fluctuations and Policy— Robert E.
Hall and David H. Paipal, Vaina books, 2010.
3. Macroeconomics— S.K. Chakravarty, Himalaya Publishing House, 2010.

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