[This paper demonstrates how the short-run static stability conditions of the two-sector growth model can be derived by converting the problem into a two-person, two-good exchange model. It is shown that the only necessary and sufficient condition for short-run stability is the Marshall-Lerner condition, and that the Drandakis (sufficient) condition follows easily from the former.]

[The "price-specie-flow" mechanism depends on a mechanical application of the quantity theory of money, i.e., it assumes that the price level of a country is solely determined by that country's money supply, which is incorrect in an open economy. Two alternative interpretations of the equation of exchange are offered, namely, the aggregate expenditure approach and the demand for money approach; and it is shown that, in general, the Marshall-Lerner condition is neither necessary nor sufficient for the stability of the classical system.]