Introduction
Fiscal policy, the use of the government budget to affect an economy, is said to be expansionary when spending is higher than revenue. The effects of fiscal policy under flexible exchange rates in open economy are dramatically different from those under fixed rates. Expansionary fiscal policy, which means increasing government spending or reducing tax, can be financed in two methods. The first is bond-financed. If the government finances its spending by issuing bonds, this will lead to domestic interest rate increase and crowd out some private investment spending. In addition, bond-financed government spending must be accompanied by an appreciation of the exchange rate at each level of income to maintain money market equilibrium. The second is money-financed. If the government creates new money to finance its deficit, then it will not raise domestic interest rates and there is no crowding out of private spending. This kinds of financing is a more expansionary way but more inflationary. The purpose of the expansionary policy is to make the economy more stable and achieve full employment and output level. In this essay, an attempt will be made to analysis the extended Mundellian model of the open Keynesian economy. Then I will discuss the macroeconomic effects of an expansionary fiscal policy in an open economy with flexible exchange rates in the context of the model.

Introduction
The basic idea of extended Mundellian model
The effect of expansionary fiscal policy
Conclusion
Reference

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