This work represents a continuation of a series of papers (Bates, 1999, Tellus, 51A, 349-372, Alexeev and Bates, 1999, Tellus, 51A, 630-651.) devoted to studying the dynamical feedback associated with the angular momentum (AM) transport in the atmosphere and the surface winds and evaporation it induces. In the current paper we analyze stability and sensitivity of an idealized climate system consisting of an atmospheric GCM with aquaplanet boundary conditions coupled to an oceanic upper mixed layer. There is no seasonal cycle in the solar radiation which is taken to be symmetric about the equator. The system is run until it reaches a quasi- equilibrium climate. We introduce a linear surface budget response operator, representing the climatological response of the surface budget to small SST perturbations around the equilibrium climate. Stability of the system is defined in terms of the properties of this operator. If the eigenmode system of the operator is complete and real parts of the eigenvalues are negative, the system is stable. The importance of different components of the surface budget for the stability of the system is analyzed. We use the surface budget response operator to assess the sensitivity of the system to the doubling of concentration of CO2. The least stable eigenmode of the operator resembles the global warming pattern and the surface winds play an important role in determining its shape. To test the approach we apply an external forcing to the system in the form of a doubling of CO2 and integrate the system until it reaches a new equilibrium climate. The results compare very well with the linear estimate of the response to doubling CO2 obtained using the surface budget response operator. The importance of different components of the system in determining the final equilibrium climate is studied. After that we fix the surface winds at their climatic values in order to eliminate the wind factor from the evaporation and repeat the whole procedure again. The response of the system to the increase of CO2 in this case is weaker and it has a different shape.