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relationship between the interest rate and net foreign investment. This net-foreign-
investment curve is the link between the market for loanable funds and the mar-
ket for foreign-currency exchange.
S I M U LTA N E O U S E Q U I L I B R I U M I N T W O M A R K E T S
We can now put all the pieces of our model together in Figure 30-4. This figure
shows how the market for loanable funds and the market for foreign-currency
(a) The Market for Loanable Funds (b) Net Foreign Investment
Real Real
Interest Interest
Supply
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