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.

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.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Please answer the question clearly， thank you

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?

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