Answer to Question #207082 in Macroeconomics for hafiz

Question

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 value of ringgit will be affected positively. This is because the international investors will confidently make more investments in the various parts and sections of the country. The reserves on foreign exchange will in turn be highly increased thus raising the value of ringgit.

Trade deficit will be reduced because through the investments that will be made by these international investors, the exports will be increased.