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a)Malaysia adopts a fixed exchange rate system in its trade with Pakistan. Assume that the Pakistani government decides to reduce import of palm oil from

a)Malaysia adopts a fixed exchange rate system in its trade with Pakistan. Assume that the Pakistani government decides to reduce import of palm oil from Malaysia. Explain and show the effect on equilibrium level of exchange rate between Malaysian Ringgit-Pakistan Rupee (MYR / RP), the values of the Malaysian Ringgit and Pakistan Rupee as well as the supply of Malaysian money.

b)A country adopts a flexible exchange rate system with imperfect capital mobility and capital flows are sensitive to changes in interest rates. Following the Covid-19 pandemic, the balance of payments was in a deficit position. Thus, the country intends to stimulate economic growth by reducing the required reserves ratio. Using IS-LM-BP analysis, show and explain the effectiveness of this policy in influencing the aggregate output level.

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