Microsoft Word - Money, Banking, and Int Finance(scribd).docx

(sharon) #1

Kenneth R. Szulczyk


Price of ringgits
$ per ringgit


Quantity of ringgits


Figure 2. Supply function for ringgits


We show the demand and supply functions for ringgits in Figure 3. We represent the
equilibrium exchange rate as P and equilibrium quantity as Q. As an illustration, Americans
increase their demand for more Malaysian products, ceteris paribus. Thus, the demand function
increases and shifts rightward. Price of ringgits increases. Consequently, the U.S. dollar
depreciates while the ringgits appreciates. U.S. products become cheaper to Malaysians. U.S.
exports rise, and U.S. imports decrease while the exact opposite occurs to Malaysian imports
and exports.
Price of ringgits
$ per ringgit


Quantity of ringgits


Figure 3. Demand increases for the Malaysian ringgits

Free download pdf