Question

In 2017, Malaysia’s exports accounted for 71% of their GDP, which accounts for the shift in the AD curve in 2017. Since February 2019, exports have declined by 5.3% on year -the biggest fall since 2016. As an importer, consumers have to pay higher price for imported goods and services. In the meanwhile, the government or the company who own the debt have to spend more money to pay loans back.

Explain one monetary policy action for Malaysia to address the most macroeconomic problem of this country. In your answer carefully explain why you choose this particular policy action. Please answer in detail

Answer 1

Here Two problems seem from the information. One is that exports have fallen. 2nd us cost of loans have risen. To counter this Malaysia needs to increase money supply. This will reduce cost if credit for banks because supply if reserves on interbank market will rise. As a result the banks will reduce their own lending rates. This will solve problem of burden of loans

Now lower interest rates will lead to depreciation of currency since it leads to flight of capital. As a result cost of exports to foreigners will fall which will promote more exports of malaysia