2. Impact of an exogenous shock - fixed exchange rates A small country. Alpenstein prohibits international financial capital flows, so FA=0. Alpenstein has a fixed exchange rate regime and defends it through official intervention; it does not sterilize. An exogenous shock occurs: Alpenstein's large trade partner falls into a recession and cuts its demand for Alpenstein's goods a. Add the BP curve to the graph below - what is the slope of the BP curve? Does the BP curve depend on the interest rate anymore? Yes or no LM IS Y b. Calculate the Y-intercept of the BP curve in terms of Y (use the fact that the BP curve is reduced to CA = 0 when FA = 0). Does this intercept change when exogenous export changes? Yes or no Show on your graph what happens to the BP curve as a result. c. what intervention, if any, is necessary to keep the exchange rate fixed. 2