Examine the effects of a change in the money supply in an open economy under a flexible exchange rate system. How are your conclusion affected by the adoption of a fixed exchange rate?
Let's start from a system in equilibrium (money supply = money demand). If the money supply increases than there will be a surplus of money in the market: there will be more lenders than borrowers. ...
This solution looks at an exchange rate problem under both a flexible and fixed exchange rate system.