Question: Using the IS-LM-FX model, explain the following statement. A fixed exchange rate is preferred to a floating (flexible) exchange rate when shocks to the economy

Using the IS-LM-FX model, explain the following statement. A fixed exchange rate is preferred to a floating (flexible) exchange rate when shocks to the economy are predominantly affect the economys asset markets; however, if the majority of shocks affects the output market, a floating exchange rate is desirable.

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