The irrelevance of expenditure shocks to nominal product in the Mundell-Fleming model disappears once "real balances" are taken to mean the nominal money stock deflated by the consumer price index, rather than the GDP deflator. Under this alternative definition of real balances there is a government spending multiplier, even in the presence of floating exchange rates and perfect capital mobility.
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Paper provided by Tasmania - Department of Economics in its series Papers with number
1996-04.