Draw the graph · Macro · Loanable funds market
Foreign savers lend here
Drag a curve sideways, or use its arrows. A curve you do not move is a curve you are saying stays put. Make each shift clear enough that a reader could see it.
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Demand for loanable funds stays put. Supply of loanable funds shifts right.
Foreign saving lent in this market adds to the supply of loanable funds at every real interest rate, so supply shifts right. The demand for funds is unchanged. The lower interest rate moves borrowers down along their demand curve.
The real interest rate falls and more funds are borrowed.
Common mistake. A common error is to shift demand right because 'foreigners want to invest.' Foreigners are lending, which supplies funds. Demand is the borrowers' side.
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Lesson: Balance of Payments