Problem Set 100-1

1. In summer 1997 Indonesia, Thailand, South Korea and Malaysia suffered an economic crisis. The crisis began with a rapid currency depreciation.

A. Explain why a currency depreciation can be inflationary. Why is the inflationary effect larger, the larger is the level of imports?

Shortly after the crisis began, the Malaysian stock exchange sponsored an advertisement in the Economist magazine which said, "Why the dark clouds of economic uncertainty will soon blow over. Malaysia. Bullish on Bouncing Back."

B. Explain the intended influence on international investors and how it could affect the exchange rate in Malaysia.

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Last Updated on 3/21/05