Q1. Suppose that Brazil initially has a higher capital rental rate (r) than the United States. a. What would be the direction of foreign direct investment (FDI)? b. Use a world-capital-market graph to show the effects of FDI on the two countries' rental rates of capital, GDP, and return to labor owners. c. Identify the net change in world output in the above graph. d. How would the wage rate and the rental rate of capital in the recipient country be affected in the long run? e. Discussion: what other effects could FDI cause in the recipient and source countries that are not captured in the model?
Q1. Suppose that Brazil initially has a higher capital rental rate (r) than the United States. a. What would be the direction of foreign direct investment (FDI)? b. Use a world-capital-market graph to show the effects of FDI on the two countries' rental rates of capital, GDP, and return to labor owners. c. Identify the net change in world output in the above graph. d. How would the wage rate and the rental rate of capital in the recipient country be affected in the long run? e. Discussion: what other effects could FDI cause in the recipient and source countries that are not captured in the model?
Survey of Economics (MindTap Course List)
9th Edition
ISBN:9781305260948
Author:Irvin B. Tucker
Publisher:Irvin B. Tucker
Chapter23: Growth And Less Developed Countries
Section23.2: Economic Growth And Development Around The World
Problem 1GE
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