When Malaysian products become more popular, ceteris paribus, we should expect

Question

BlackTom AI · Accepted Answer

Increased foreign demand for Malaysian goods raises foreigners’ desire to hold ringgit to pay for those goods, so the demand for Malaysian currency rises and its value increases relative to other currencies.

1) Relevant concepts:
- Demand for a country’s currency comes largely from foreigners needing that currency to buy its exports or to invest there.  
- Appreciation means the currency becomes stronger (you get more foreign currency per unit, or need less domestic currency to buy a unit of foreign currency).  
- Ceteris paribus means all other factors (e.g., Malaysian monetary policy, foreign incomes, tastes for imports) remain unchanged.

2) Step-by-step reasoning:
- Step 1: Malaysian products become more popular abroad → foreign consumers want to buy more Malaysian exports.  
- Step 2: To purchase those exports, foreigners must obtain Malaysian ringgit (MYR), so the demand curve for MYR shifts right (increase in demand).  
- Step 3: With supply of MYR held constant (ceteris paribus), the new intersection of supply and demand occurs at a higher exchange-rate price of MYR (i.e., MYR is worth more).  
- Step 4: Therefore, the ringgit appreciates.

3) Intermediate logic (no numerical values needed):
- Initial equilibrium: supply S and demand D for MYR determine exchange rate E0.  
- After popularity increase: demand shifts to D1 > D. With S unchanged, new exchange rate E1 > E0 (appreciation).

4) Why the correct answer is correct:
- Option b states: increased demand for exports → increased demand for Malaysian currency → appreciation of Malaysian currency. That sequence matches the demand-for-currency mechanism described above and respects ceteris paribus.

5) Why other options are incorrect:
- a incorrectly predicts depreciation despite higher demand for MYR; higher demand normally causes appreciation, not depreciation.  
- c claims an increased supply of Malaysian currency; nothing in the scenario implies Malaysians are selling more ringgit (supply would rise only if Malaysians increased purchases of foreign goods or investors sold ringgit), so this is wrong. Increased supply would cause depreciation, which contradicts the scenario.  
- d states demand decreases and depreciation occurs, the exact opposite of the given change.

Conclusion: The correct choice is b. This matches the provided answer.

When Malaysian products become more popular, ceteris paribus, we should expectSingle choice

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