Q2. If a local newspaper reported that the Malaysian government will shore up the sliding ringgit by working to cut record budget and trade deficits.

a)According to the model in this chapter, would a reduction in the budget deficit reduce the trade deficit? Would it raise the value of the ringgit? Explain.

b)Suppose that a reduction in the budget deficit made international investors more confident in the Malaysian economy. How would this increase in confidence affect the value of ringgit? How would it affect the trade deficit?

Q6. Suppose Indonesian suddenly develop a strong taste of Kelantan Batik. Answer the following questions in words and with diagram.

a)What happens to the demand for ringgit in the market for foreign-currency exchange?

a)What happens to the value of ringgit in the market for foreign-currency exchange?

b)What happens to the quality of net exports?

Q9. Suppose that Malaysians decide to increase their saving.

a)If the elasticity of Malaysian net capital outflow with respect to the real interest rate is very high, will this increase in private saving have a large or small effect on Malaysian domestic investment?

b)If the elasticity of Malaysian exports with respect the real exchange rate is very low, will this increase in private saving have large or small effect on the Malaysian real exchange rate?