So I have been studying the Mundell Fleming Model, I fail to understand the impact of investment sentiments in a large open economy.

This is what I think :

Positive investment sentiments will increase the domestic investment at given interest rate therefore the IS curve shifts right. Net capital outflows reduce along with fall in net exports ( expected appreciation). Therefore, the output increases and domestic currency appreciates.

Is this logic correct. If yes, how would this differ in case of a small open economy.


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