FIGURE 4.6 The United States as a Global Borrower Before U.S. Debt Uncertainty 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 (E0) occurs at an
equilibrium rate of return (R0) and the equilibrium quantity is at Q0.

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. Diminished confidence means U.S. financial

assets will be seen as more risky.

Step 3. Will supply increase or decrease? When the enthusiasm of foreign investors’ for investing their money in
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