Take the two-country model as an example: there are four markets in the model: the first domestic commodity market, the second domestic commodity market, the capital market (interest rate R) and the foreign exchange market (exchange rate W). The main functions in the model are the investment I 1(r) and I2(r) of the two countries, the current account balance of the first country B 1(Y 1, Y2, w) the liquidity preference (money demand) of the two countries L 1(Y 1, w). The total output of the two countries (Y 1) and Y2 interest rate (r) exchange rate) and the spontaneous expenditure of the two countries (A 1 and A2 Mundell-Fleming model) examine the situation of complete capital flow, that is, the asset owners think that domestic securities and foreign securities can be completely replaced. Therefore, as long as the domestic interest rate exceeds the foreign interest rate, it will attract a lot of capital inflows; Or as long as the domestic interest rate is lower than the foreign interest rate, it will cause asset owners to sell domestic assets and cause a large amount of capital outflow. Mundell-Fleming model focuses on the different effects of fiscal policy and monetary policy on the premise of complete capital flow. Its core conclusions are as follows: 1. Under the fixed exchange rate system, the condition of complete capital flow makes monetary policy unable to affect the income level, but only affects the reserve level; However, fiscal policy has become more effective in affecting income, because the capital inflow it leads to increases the money supply, thus avoiding the negative impact of rising interest rates on income growth. 2. Introduce the floating exchange rate system (1) monetary policy-no matter what the capital liquidity assumption, monetary policy is more effective than the fixed exchange rate system in raising income (Figure P624-625). (2) fiscal policy-in the absence of capital flow at all, the income increase under floating exchange rate is greater than that under fixed exchange rate; In the case of limited capital mobility, the expansionary influence of fiscal policy is still effective, but the income growth rate is less than that under the fixed exchange rate system; In the case of complete liquidity of capital, fiscal policy is unable to stimulate income growth.