Question

Draw an Edgeworth box diagram and mark the endowment point (plot D on the vertical axis and C on the horizontal axis and use the lower left corner of the diagram as the origin for Ariki).

Answer 1

To create a demand and supply diagram for financial capital with foreign investment, plot the quantity of financial investment on the horizontal axis and the interest rate on the vertical axis, with the downward-sloping demand curve (D) and an upward-sloping supply curve (S) intersecting to show the original equilibrium (Eo).

Step-by-step explanation:

To draw a diagram showing demand and supply for financial capital in a scenario where foreign investors are pouring money into the U.S. economy, you would start by plotting the axes. The horizontal axis would represent the quantity of financial investment (Qo), and the vertical axis would represent the interest rate (R or Ro for the original interest rate). The diagram must include a downward-sloping demand curve (D) and an upward-sloping supply curve (S).

The intersection of the demand and supply curves indicates the original equilibrium point (Eo). This equilibrium point corresponds to the original interest rate (Ro or R) and the quantity of financial investment (Qo) before any changes occur in the economy due to foreign investment or other factors.