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