Alright. So let's continue here with the shifts in the supply in the exchange rate market. And notice how similar these are to what we talked about above. Except now we're talking about, say, US income. So let's look at these shifts in supply. The first one being a change in US income. So before we talked about the change in foreign income demanding US dollars. Now it's the US income has increased, and we're going to buy foreign goods. So we're going to be supplying our dollars to buy foreign goods. So when there's more US income, there's more demand for imports and when we buy things with imports, we're supplying our dollars in the market and we're buying things, in we're buying things from other countries. So our dollars are being supplied to the market and then we're buying imports here. So there's more supply of US dollars in that foreign market, foreign exchange market there.
And the second, notice this is the opposite as well. Now, it's a change in foreign interest rates. So this again is US dollars being supplied. We're taking our dollars and we're paying to buy foreign investments. So when there's higher foreign interest rates, we want to buy those foreign investments to get that higher interest. So we supply our US dollars and we buy those foreign investments. So there's more supply of US dollars. And finally, just like before, there could be a change in the speculative outlook. So this one's the opposite as well. If there's an expected depreciation of US dollars, we would supply those dollars now, there would be more supply of US dollars now so that we could buy foreign investments expected depreciation of the US dollar, well, we have a decrease in the expected depreciation of the US dollar, well, we have a decrease in the supply. Excuse me, an increase in the supply there as well.
Okay, so again, we have the opposite effects too, right? If there's a decrease in US income, right? We would see the opposite effect, a lower supply, a decrease in foreign interest rates, right? So let's go ahead and just like before, let's see what happens on our graphs here when we have the good thing happened to supply and the bad thing happened to supply. So we'll start with our original situation which is just our standard X graph. And remember, this will be say Great British Pounds to US Dollars. And this will be the quantity here. So if this was our original demand and supply, and now we had something good happen to supply. Say, there was higher US income, so we're demanding more imports. We're supplying these dollars to the market. Well, the supply is going to shift to the right and we're going to be in this new situation. So what happens to the exchange rate here? For the exchange rate was originally here at r one, well, it's decreased, right? We see a decrease in the exchange rate. So if this was, say, £1.5 for $1, now we're at 1.3. Right? It decreased £1.3 for $1 Okay? So it decreases there when supply increases. So that's always what you want to be able to do is figure out which way the curve shifts and then analyze the new situation. And notice how we're focused mainly just on the exchange rate. We're not focused here on the quantity as much. This is the big focus of this unit is what's happening over here.
And now the opposite, a bad thing happening for supply here. So this would be a situation where, say the US interest rates, or excuse me, the foreign interest rates have gone down, right? Foreign interest rates have decreased so there's less investment, right? And that's the opposite of what we see here. When foreign interest rates went up, we were supplying more dollars. Well, if foreign interest rates go down, we're going to supply less dollars. Okay? So we have our original situation, supply and demand. And now we're going to shift the supply to the left and we'll be at supply 2. So where's our new equilibrium? Right there where our original rate was there and now our rate has gone up. Right? Our rate has gone up to r2 there. So this would be the opposite situation. Maybe we started at £1.5 per $1 and now we're at £1.7 per $1. Okay? So this is very similar to what we've done before shifting graphs left and right. Now we're just thinking of it in the exchange rate market. Okay? So just remember those determinants there that we were dealing with, with foreign income, with the interest rates and speculation, alright? So that's about it here. Let's go ahead and pause and we'll move on to the next video.