Answer to Question #156346 in Macroeconomics for Peeriya

Question

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) 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?

Answer 1

The international investors will invest in various sectors in the country which will bring money to the country thereby increasing foreign exchange reserves too. Therefore the value of renngit will increase. Through the international investors the exports will increase thereby reducing the trade deficit.