Final answer:
The equilibrium interest rate is decided by the balance of money supply and demand; it rises when the supply decreases such as when foreign investment perceptions shift, leading to less money to lend.
Step-by-step explanation:
The equilibrium interest rate in the money market is determined by the intersection of the money supply and demand curves. Factors affecting this include changes in the lending habits of financial institutions, consumer preferences, and external influencers such as foreign investment shifts. When the equilibrium is disrupted, for instance due to a decrease in the money supply resulting from foreign investors' perceptions, the supply curve shifts to the left. This means there will be less money available at each interest rate, leading to a higher equilibrium interest rate to balance the limited supply with the demand. Intuitively, when there's less money to lend, the price of borrowing that money (the interest rate) increases.
If Table 4.6 shows that at a certain interest rate, the amount of savings equals the amount of borrowing, that is the equilibrium point. However, with a shift resulting in $10 million less supplied at every interest rate, the new equilibrium will be established at a point where the reduced supply equals the demand, which would generally be at a higher interest rate. This scenario exemplifies the direct relationship between supply scarcity and rising prices, which in the case of the loan market is represented by the interest rate.