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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

how do I view the graphs
Patricia Reply
how do I open the links
Patricia
what is the markert
Ester Reply
A market is any place where buying and selling can take place.
Landing
20. Why is a football game on ESPN a quasi-public good but a game on the NBC, CBS, or ABC is a public good?
Brigam Reply
how people make decision?
Xafsa Reply
what is supply and demand
Xafsa Reply
Demand refers to how much (quantity) of a product or service is desired by buyers. The quantity demanded is the amount of a product people are willing to buy at a certain price.
Landing
thank you very much
Xafsa
list and briefly explain the three principles that describe how the economy as whole works?
Xafsa
what is algebra?
ibiflower Reply
what is the relationship between price and demand
Evans Reply
the relation ship between price and demand is the income and Utility means when you are satisfied and you can buy it then you have to demand it.Thanks
Abdulkadir
who thought u that? you are not answering this as an economist
Evans
alright, but can you tell how the economist will be answered
Abdulkadir
alright, but can you tell me how the economist will be answered
Abdulkadir
Law of demanded  states: As price  of a good increases, the quantity demanded  of the good falls, and as the price  of a good decreases, the quantity demanded of the good rises.
Lewis
So, there is an inverse relationship between price and demand.
Lewis
lewis answered it perfectly
Evans
I want for market value for price. or cleance
Samantha
time ticket of value market down so double be self 1.09 but I 10 chesse for 1.09 bugger
Samantha
hi
Langanani
Without scarcity there would be no subject call Economics. Explain why?
Landing
because economics is the study of scarcity of resources and the satisfaction of basic human need
Pele
give an example of some action that has both amonetary and nonmonetary apportunity cost?
Aisha Reply
any action can be argued to have both. For instance, being in class has the opportunity cost of time you could be spent earning wages, or time that could've been spent leisurely.
DASRAT
absolutely
Abdulkadir
Really
DASRAT
there is no any action that hasn't both a monetary and non-monetary as said Mr Dasrat
Abdulkadir
thanks
Aisha
u Welcome
Abdulkadir
describe an important trade-off you recently faced?
Aisha Reply
Financial issues and careerPersonal life and work lifeMost people don't like the work they do. The interest they have is something different from the work they do and eventually forgo their interest. These are the three most important tradeoffs I have come across, yet there may be many in number.
DASRAT
still
Abdulkadir
Yah still
DASRAT
yes
Abdulkadir
why people make the choices they make and how economist go about explaining those choices
Asim Reply
what is tradeoffs
Asim
giving up one thing to have another
Shriyash
what is demand
Asim Reply
why demand and supply interact in a market
Asim
In the supply and demand model of price determination, there is never a surplus or shortage of goods at the equilibrium level. The market always settles at the point where supply equalsdemand. If demand increases (decreases) and supply is unchanged, then it leads to a higher (lower) equilibrium pric
DASRAT
why demand is based on need and wants ?
Asim
because there is scarcity of resources,whether you can not get whatever you want one time so you have to chooseen which you will choose that is your needs(basic) after that you can demand it on the other hand,every society would demand their basic needs when they recognized it. so ther is no demand
Abdulkadir
there is no demand if there is no needs and wants
Abdulkadir
Because when you have need and your wants is depends upon demand
DASRAT
what is other causes
Asim
overall demand is coused by an income and price,if the price satisfies to you and your income is enough to you the you will demand whatever you want
Abdulkadir
what is satiety ?
Asim
what is a different between marginal cost and marginal benefit
Ndumiso Reply
What is Tradeoff
Oumie Reply
What is traoff
Oumie Reply
It's tariff not traoff
DASRAT
I mean Tradeoff
Oumie
a balance achieved between two desirable but incompatible features; a compromise.
SHARMAKE
Thanks
Oumie
these problems of scarcity are been face by household companies and nation at large
Muafue Reply
will you please explain it more😭
kainat
i am economist and i need helping to be perfect person in that field
Dr
okay
kainat
Hey
DASRAT
yup
kainat
hi
louh
scarcity is inevitable as it ensures sanity and sanctity among men. it's alled 'the Lord's act'. The issue of the victims is just a simple one of Cause and Effect. Somebody or entity must be a recipient of whatever.
tolu

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Source:  OpenStax, Microeconomics. OpenStax CNX. Aug 03, 2014 Download for free at http://legacy.cnx.org/content/col11627/1.10
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