This note provides students with a basic understanding of the Mundell-Fleming model, also known as the IS-LM-BP model. The model is useful in understanding the effects of capital controls (typically in a fixed currency exchange rate regime) on a country's macroeconomic variables. It enables the determination of equilibrium income and how this income responds to economic policy and shocks. It merges the foreign exchange market (BP curve), the goods market (IS curve) and the money market (LM curve).
