Current income transferred (claims to consumption, $) Rate of interest (%) D D S S Demand for more current income (borrowers) Supply of current income offered (savers) r* Q* Qd Qs Surplus r = 8.0%
At r = 8.0%, savers offer 8.75 of current income but borrowers want only 1.25.
Saving exceeds borrowing — the surplus pushes the rate down toward 5%.