Figure 10.1 demonstrates the three lines represented by the above relationships and the general equilibrium. Equation (10.8’’) corresponds to the MM line plotted on the S–r plane, on which the money market clears or is in equilibrium. Its posi-
tive slope is obvious, given the signs of the two partial differentials involved for
the relationship. Equation (10.10’’) represents the BB line, on which the domestic
bond market clears. It possesses a negative slope resulted from the signs of the
two partial differentials in the equation. Equation (10.10’’) is the B*
B*
line, on
which the foreign bond market clears. Due to the fact from the identity: