After reading the short story, \"The Fatal Equilibrium,\" use the Mundell-Fleming model to explain precisely how the inspector figured out who the murderer was. In your answer, you should draw an appropriate model that reflects the economic conditions in Europe in 1963, especially with regard to the exchange rate regime (Bretton Woods is still in effect) and the degree of capital mobility in Europe the early 1960s. Solution DEFINITION of - Bretton Woods system This is was an important system for monetary and also exchange rate management, it was initiated in 1944. The Bretton Woods Agreement was made at the United Nations Monetary and Financial Conference , held in Bretton Woods, (New Hampshire), between July 1 till July 22, 1944. Major results of the Bretton Woods conference comprised the formation of the International Monetary Fund and also the International Bank for Reconstruction and Development and, the initiation of an adjustable pegged foreign exchange rate system. Currencies were made to be pegged to gold . The IMF had the responsibility to intervene whenever an imbalance of payments arose. EXPLAINATION- \'Bretton Woods Agreement\' One of the proposals of the conference was that the currencies can be convertible for trade and also other current account transactions. After the end of World War II in 1945, Europe and also the rest of the world had embarked on a long period of reconstruction as well as economic development to recover from the devastation caused by the war. Although gold earlier served as the base reserve currency, the U.S dollar now surfaced as an international reserve currency which was linked to the price of gold. After magnificent headway towards liberalization of the capital movements in the early 1960s, the European governments resorted greatly to capital controls after the demise of Bretton Woods system. In some countries (like Italy), what seemed as a temporary backlash against the incipient globalisation resulted in an escalation of domestic and also external controls, causing a comprehensive and also long regime of financial repression. As the capital controls contributed greatly to easing the government .

1. After reading the short story, "The Fatal Equilibrium," use the Mundell-Fleming model to
explain precisely how the inspector figured out who the murderer was. In your answer, you
should draw an appropriate model that reflects the economic conditions in Europe in 1963,
especially with regard to the exchange rate regime (Bretton Woods is still in effect) and the
degree of capital mobility in Europe the early 1960s.
Solution
DEFINITION of - Bretton Woods system
This is was an important system for monetary and also exchange rate management, it was
initiated in 1944. The Bretton Woods Agreement was made at the United Nations Monetary and
Financial Conference , held in Bretton Woods, (New Hampshire), between July 1 till July 22,
1944.
Major results of the Bretton Woods conference comprised the formation of the International
Monetary Fund and also the International Bank for Reconstruction and Development and, the
initiation of an adjustable pegged foreign exchange rate system. Currencies were made to be
pegged to gold . The IMF had the responsibility to intervene whenever an imbalance of payments
arose.
EXPLAINATION- 'Bretton Woods Agreement'
One of the proposals of the conference was that the currencies can be convertible for trade and
also other current account transactions.
After the end of World War II in 1945, Europe and also the rest of the world had embarked on a
long period of reconstruction as well as economic development to recover from the devastation
caused by the war. Although gold earlier served as the base reserve currency, the U.S dollar now
surfaced as an international reserve currency which was linked to the price of gold.
After magnificent headway towards liberalization of the capital movements in the early 1960s,
the European governments resorted greatly to capital controls after the demise of Bretton Woods
system. In some countries (like Italy), what seemed as a temporary backlash against the incipient
globalisation resulted in an escalation of domestic and also external controls, causing a

2. comprehensive and also long regime of financial repression. As the capital controls contributed
greatly to easing the government