Answer to Question #157231 in Macroeconomics for zahrah

Question

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 reduction in the budget deficit reduce the trade deficit? Would it raise the value of ringgit? Explain.

Answer 1

Yes, a reduction in the budget deficit will reduce the trade deficit,hence it would raise the value of the Ringgit.