Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Chapter 23, Problem 5DQ
To determine
The impact of change in investment in U.S.
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Q4. Suppose that Brazil initially has a higher capital rental rate (r) than the United States.
What would be the direction of foreign direct investment (FDI)?
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.
Identify the net change in world output in the above graph.
Discussion: what other effects could FDI cause in the recipient and source countries that are not captured in the model?
Your answer
=
5√K and has a capital
Country A produces GDP according to the following equation: GDP
stock of 13,399. If the country devotes 13% of its GDP to producing or repairing investment goods,
how much is this country currently investing?
Rounds your answer to two decimal places.
With the following excerpts, how could economic growth affect the value of a country’s imports
Chapter 23 Solutions
Economics: Principles & Policy
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- China invests almost 50 percent of its annual production in new capital compared to 15 percent in the United States. Capital per hour of labor in China is about 25 percent of that in the United States. Explain which economy has the higher real GDP per hour of labor, the faster growth rate of labor productivity, and which experiences the more severe diminishing returns.arrow_forwardExplain the difference between foreign direct investment (FDI) and foreign portfolio investment (FPI)? Explain which one is more useful to accelerate economic growth of home country.arrow_forwardMany countries import considerable amounts of goods and services from other countries. Yet economists argue that a nation can enjoy a high standard of living only if it can produce a large quantity of goods and services itself. Can you reconcile these two facts?arrow_forward
- List the factors that account for increases or decreases in productivity growth rates.arrow_forwardDiscuss the factors affecting the GDP growth in Gulf corporation countries (GCC)?arrow_forwardQ1. 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?arrow_forward
- Country A produces GDP according to the following equation: GDP = 5√K and has a capital stock of 12,254. If the country devotes 15% of its GDP to producing or repairing investment goods, how much is this country currently investing? Rounds your answer to two decimal places.arrow_forwardBriefly explain whether investment spending is likely to increase more rapidly in a country with a rapidly growing population or in a country with a slowly growing population. Does your answer depend on whether the country is a high-income industrial country or a low-income developing country?arrow_forwardWhen using AD/AS analysis to illustrate changes within an economy, which of the following would NOT need to be considered when looking at changes to economic growth? Select one: a. More efficient use of the capital stock b. Developing a more efficient capital and finance sector c. Increased labour productivity d. Increased availability of social capitalarrow_forward
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