IN GEOMETRIC TERMS

reduced to 10 per cent, at which point he no longer se-cures a net gain from borrowing. This point is located atwhere the M line is tangent to Individual l’& W linethrough that point. There at last he reaches a positionwhere the next $100 shift on the Market line is no longerless steep than his Willingness line but exactly as steep.

The same principles apply to Individual 2. The onlydifferences are: first, that he shifts upward from P to hisQ instead of downward—that is, he adds to next year’sincome at the expense of this year’s income; and, sec-ondly, that he acts in reference to a different family ofWillingness lines entirely his own. Such a picture im-plies the utmost sensitiveness or fluidity of inducementsand responses. There would be a continual readjustmentof loans and borrowings, back and forth; practically everyperson would be either a borrower or a lender; the extentof his borrowings or loans would be very finely graduated,and constantly changing.

We have not yet pictured geometrically the whole prob-lem of the rate of interest; but we have pictured the solu-tion of the problem of how any one individual will adjust,under the ideal conditions assumed, his lending or borrow-ing to the market rate of interest. This simplified solu-tion consists, we have seen, in finding Q at the pointwhere the M line at a given rate of interest is tangentto one of the given family of W lines.

Having solved this individual problem, we now proceedto the market problem.

§14. Market Equilibrium

It may seem that little progress has yet been madetoward the ultimate end of determining the rate of inter-est because of our initial assumption that the rate of

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