IN GEOMETRIC TERMS

to bring him back again to a position of real income thisyear.

In short the investment, or 0 shift, affects the size ofincome as measured in present worth of the entire incomeposition while the loan, or M shift, affects its final shape.

The Chart 38 is evidently only one type amongmany and the reader who wishes to pursue the subjectinto special cases will find it easy to do so by varying thecurves to suit himself. 5

§6. Market Equilibrium

Just as in the first approximation, so in this secondapproximation there are two successive problems:

(1) How the individual reacts to a given rate of inter-est.

(2) How market equilibrium determines that rate.

The first of these two problems having now been solved,

we are ready for the second, the market problem—toshow how market equilibrium is established. This isprecisely as in Chapter X, except that the M line, insteadof rotating about a fixed point P, now rolls around the0 line.

The problem, then, is simply to draw a set of straightM lines, one for each individual, each person’s M linebeing tangent to his Opportunity line at a point P, allsuch M lines being parallel to each other, to find on eachof them the point Q at which it is tangent to a W line ofthe person concerned, then to roll these straight linesaround said Opportunity lines, while still keeping them

"Of course, the shift along the 0 line depends entirely on where wesuppose the individual to be situated on that line in the first place. Ifwe wish, we may suppose him to start on the opposite side of P fromthat hitherto pictured, in which case he does not enter into a contem-plated investment but withdraws from one.

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