Here is a nice application of the Mundell Fleming Model with Flexible Prices
Falling Prices, Rising Unemployment Buffet Euro Zone
by Nicholas Winning and Christopher Emsden, Wall Street Journal, Aug 01, 2009
From The Wall Street Journal Economics:Macro Weekly Review
SUMMARY: The annual contraction in euro-zone consumer prices accelerated in July. Meanwhile,
the unemployment rate rose to 9.4%, the highest level for a decade in June.
CLASSROOM APPLICATION: There are several interesting topics raised in this article:
deflation versus inflation, the contrast between U.S. and euro-zone economic conditions, and the likely
impact of U.S. economic conditions on the euro-zone through the export channel.
1. (Introductory) What does the latest data indicate about unemployment and inflation in the
2. (Advanced) What are the adverse consequences of deflation? Can you conjecture what the impact on the Euro might be?
4. (Advanced) If inflation is undesirable, shouldn't deflation be desirable? What is the flaw in that logic?
5. (Advanced) How do economic conditions in the United States affect the euro-zone
Reviewed By: Edward Gamber, Lafayette College