1 The Mundell-Fleming Model ■Key assumption: Small open economy with perfect capital mobility. P=r必 ■( Goods market equilibrium-the IS*curve: Y =C(Y-T)+I(r*)+G+NX(e) where e nominal exchange rate foreign currency per unit of domestic currency CHAPTER 12 Aggregate Demand in the Open Economy slide 3 slide 3 § Key assumption: Small open economy with perfect capital mobility. r = r* § Goods market equilibrium-the IS* curve: Y  C (Y T )  I (r *)  G  NX (e) where e = nominal exchange rate = foreign currency per unit of domestic currency 1