1. Discuss the sensitivity of output to real (aggregate demand) and monetary shocks (L bar) in a fixed versus a floating rate system. Use the IS-LM-FX diagram in your answer

2. Consider a world with two countries, H and F. F fixes the exchange rate of its currency to that of H. Analyze using the IS-LM-FX framework how a decision by F to devalue its exchange rate affects output in H.

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1 IS LM model also known as investmentsavings liquiditymoney model is a key concept in Macroeconomics which lies within the General Theory of Employme... View the full answer