1. Chapter 4. Flexible Prices: The Monetary Model
The Simple Monetary Model of a Floating Exchange Rate
The Simple Monetary Model of a Fixed Exchange Rate
Interest Rates in the Monetary Model

2. Monetary Model of a Floating Exchange rate
Setting:
AD is vertical
Md = kPy = Ms = kPy = kY
PPP obtains at all times and SP* = P

3. Initial Equilibrium
MS0 = Md = kPy = kSP*y
and

4. AD With Quantity Function

5. Money Supply Increase Under Floating Rates

6. An Income Increase Under Floating Exchange Rates

7. A foreign Price Increase Under Floating Exchange Rates

8. The Two-Country Model of A Floating Exchange Rate
Md* = k*P*y*
And if P/P*= S, then;

9. The Simple Monetary Model of a Fixed Exchange Rate
FX + DC = MS FX = foreign currency reserves and S is fixed.
MS0 = FX1 + DC1

10. A Money Supply Increase Under Fixed Rates

11. Devaluation Under Fixed Exchange Rates

12. Interest Rates in the Monetary Model