EBK STUDY GUIDE FOR MANKIW'S PRINCIPLES
7th Edition
ISBN: 9781337509848
Author: Mankiw
Publisher: VST
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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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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?
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.
Over the past decade, some of Japanese saving has been used to finance US
investment. That is, the Japanese have been buying US capital assets. Use
panel of three graphs to answer the following questions :
a. If the Japanese decided they no longer wanted to buy US assets, what
would happen in the US market for loanable funds? In particular, what would
happen to US interest rates, US saving and US investment? And what happen
to NCO ?
b. What would happen in the market for foreign currency exchange? In
particular, what would happen to the value of the dollar (exchange rate) and
the US trade balance? Explain
Chapter 18 Solutions
EBK STUDY GUIDE FOR MANKIW'S PRINCIPLES
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