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- Title
Government expenditure policies in the small open economy.
- Authors
Floyd, John E.
- Abstract
Abstract. The Fleming-Mundell theorem that fiscal policy is effective under fixed exchange rates in small open economies and ineffective under flexible rates is examined within the framework of a model that specifies the production, employment, and commodity market equilibrium conditions more fully than has traditionally been done. The analysis focuses exclusively on government expenditure policies and concludes that in general the theorem does not hold. An increase in government expenditure increases employment under all circumstances when the exchange rate is flexible and under reasonable conditions when it is fixed. The Fleming-Mundell balance of payments results also fail; the changes in the balance of payments tend to be stock rather than flow adjustments and are not uniformly in the direction postulated.
- Subjects
FISCAL policy; FOREIGN exchange rates; SMALL state economy
- Publication
Canadian Journal of Economics, 1979, Vol 12, Issue 3, p377
- ISSN
0008-4085
- Publication type
Article
- DOI
10.2307/134728