QUESTION 1

If a local newspaper reported that the

Malaysian government will shore up the sliding ringgit by working to cut record

budget and trade deficit

a. according to the model in this chapter,

would a reduction in the budgets deficit reduce the trade deficit? Would it

raise the value of the ringgit?

b. suppose that a reduction in the budget

deficit made international investors more confident in the Malaysia economy,

how many would this increase in confidence affect the value of ringgit? How

would it affect the trade deficit?

QUESTION 2

Suppose Indonesian suddenly develop a strong

taste for Kelantan batik. answer the following question in words with diagram

a. what happens to the demand for ringgit

inn the market for foreign-currency exchange?

b. what happens to the value of ringgit in

the market for foreign-currency exchange?

c. what happens to the quantity of net

exports?

QUESTION 3

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 to the real exchange rate is very low, will this increase in

private saving have a large or small effect on the Malaysian real exchange

rate?

QUESTION 4

for each of the three theories for the upwards slope of the short run aggregate supply curve, carefully explain the following:

a.how many economy recovers from a recession and returns to its long-run equilibrium without any policy invention

b.What determines the speed of that recovery.

QUESTION 5

For each of the following events, explain the short run and long run effects on output and the price level, assuming policymakers take no action

a.The stock market declines sharply, reducing consumers' wealth

b.The federal government increase spending on national defenses

c.A technological improvement raise productivity

d.A recession overseas cause foreigners to buy fewer Malaysian goods.