Bundle: Principles of Microeconomics, Loose-Leaf Version, 7th + Aplia, 1 term Printed Access Card
7th Edition
ISBN: 9781305135444
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 18, Problem 8PA
Subpart (a):
To determine
Impact of trade in the perfect competition .
Subpart (b):
To determine
Impact of trade in the perfect competition.
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During the 1980s, 1990s, and the first decade of the 20th century, the United States experienced a significant inflow of capital from abroad. For example, Toyota, BMW, and other foreign car companies built auto plants in the United States. Draw a diagram of the U.S. capital market, show the effect of this inflow on the rental price of capital in the United States and on the quantity of capital in use. Describe it in words.
b) Using a diagram of the U.S. labor market, show the effect of the capital inflow on the average wage paid to U.S. workers.
Q. 4
The Services sector has been steadily rising in relative importance in GDP of the United States, as well as elsewhere around the world. Since "services" have been identified as "non-tradable" (e.g., it is difficult to export haircuts), it may be argued that this trend will likely slow the rapid growth in international trade. Discuss.
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?
Chapter 18 Solutions
Bundle: Principles of Microeconomics, Loose-Leaf Version, 7th + Aplia, 1 term Printed Access Card
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