12 . Equilibrium changes in the foreign exchange market

The following questions focus on the exchange rate between the Malaysian ringgit and the Danish krone. Assume the exchange rate is flexible. The exchange rate is defined as the number of ringgit you must pay for one krone.

Suppose a recession in Malaysia causes Malaysian incomes to decrease, while incomes in Denmark remain the same.

Shift the appropriate curve or curves on the following graph to illustrate how this affects the market for Danish kroner if all other things remain equal.

Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther.

? O Supply of Kroner Demand for Kroner Supply of Kroner RINGGIT PRICE OF KRONER Demand for Kroner QUANTITY OF KRONERSupply of Kroner Demand for Kroner O Supply of Kroner RINGGIT PRICE OF KRONER Demand for Kroner QUANTITY OF KRONER