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The united states as a global borrower

In the global economy, trillions of dollars of financial investment cross national borders every year. In the early 2000s, financial investors from foreign countries were investing several hundred billion dollars per year more in the U.S. economy than U.S. financial investors were investing abroad. The following Work It Out deals with one of the macroeconomic concerns for the U.S. economy in recent years.

The effect of growing u.s. debt

Imagine that the U.S. economy became viewed as a less desirable place for foreign investors to put their money because of fears about the growth of the U.S. public debt. Using the four-step process for analyzing how changes in supply and demand affect equilibrium outcomes, how would increased U.S. public debt affect the equilibrium price and quantity for capital in U.S. financial markets?

Step 1. Draw a diagram showing demand and supply for financial capital that represents the original scenario in which foreign investors are pouring money into the U.S. economy. [link] shows a demand curve, D, and a supply curve, S, where the supply of capital includes the funds arriving from foreign investors. The original equilibrium E 0 occurs at interest rate R 0 and quantity of financial investment Q 0 .

The united states as a global borrower before u.s. debt uncertainty

The graph shows the supply and demand for financial capital that includes the foreign sector.
The graph shows the demand for financial capital from and supply of financial capital into the U.S. financial markets by the foreign sector before the increase in uncertainty regarding U.S. public debt. The original equilibrium (E 0 ) occurs at an equilibrium rate of return (R 0 ) and the equilibrium quantity is at Q 0 .

Step 2. Will the diminished confidence in the U.S. economy as a place to invest affect demand or supply of financial capital? Yes, it will affect supply. Many foreign investors look to the U.S. financial markets to store their money in safe financial vehicles with low risk and stable returns. As the U.S. debt increases, debt servicing will increase—that is, more current income will be used to pay the interest rate on past debt. Increasing U.S. debt also means that businesses may have to pay higher interest rates to borrow money, because business is now competing with the government for financial resources.

Step 3. Will supply increase or decrease? When the enthusiasm of foreign investors’ for investing their money in the U.S. economy diminishes, the supply of financial capital shifts to the left. [link] shows the supply curve shift from S 0 to S 1 .

The united states as a global borrower before and after u.s. debt uncertainty

The graph shows the supply and demand for financial capital that includes the foreign sector.
The graph shows the demand for financial capital and supply of financial capital into the U.S. financial markets by the foreign sector before and after the increase in uncertainty regarding U.S. public debt. The original equilibrium (E 0 ) occurs at an equilibrium rate of return (R 0 ) and the equilibrium quantity is at Q 0 .

Step 4. Thus, foreign investors’ diminished enthusiasm leads to a new equilibrium, E 1 , which occurs at the higher interest rate, R 1 , and the lower quantity of financial investment, Q 1 .

Questions & Answers

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Joseph
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nanopartical of organic/inorganic / physical chemistry , pdf / thesis / review
Ali
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There are lots of products of nano chemistry... Like nano coatings.....carbon fiber.. And lots of others..
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Even nanotechnology is pretty much all about chemistry... Its the chemistry on quantum or atomic level
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da
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Giriraj
Preparation and Applications of Nanomaterial for Drug Delivery
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da
Application of nanotechnology in medicine
has a lot of application modern world
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RAW Reply
please someone correct me if I'm wrong but I think one can use nanoparticles, specially silver nanoparticles for water treatment.
Damian
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Professor
I think
Professor
Nasa has use it in the 60's, copper as water purification in the moon travel.
Alexandre
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Alexandre
what is the stm
Brian Reply
is there industrial application of fullrenes. What is the method to prepare fullrene on large scale.?
Rafiq
industrial application...? mmm I think on the medical side as drug carrier, but you should go deeper on your research, I may be wrong
Damian
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LITNING Reply
what is a peer
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What is meant by 'nano scale'?
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scanning tunneling microscope
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Do u think that Graphene and Fullrene fiber can be used to make Air Plane body structure the lightest and strongest. Rafiq
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Any one who tell me about Preparation and application of Nanomaterial for drug Delivery
Hafiz
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write examples of Nano molecule?
Bob
The nanotechnology is as new science, to scale nanometric
brayan
nanotechnology is the study, desing, synthesis, manipulation and application of materials and functional systems through control of matter at nanoscale
Damian
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Equilibrium price is a stable price and it must stay.discuss
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Card 14 / 21: What are the similarities between a consumer’s budget constraint and society’s production possibilities frontier, not just graphically but analytically?
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Source:  OpenStax, Principles of macroeconomics for ap® courses. OpenStax CNX. Aug 24, 2015 Download for free at http://legacy.cnx.org/content/col11864/1.2
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