Economics: Principles and Policy (MindTap Course List)
13th Edition
ISBN: 9781305280595
Author: William J. Baumol, Alan S. Blinder
Publisher: Cengage Learning
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Chapter 24, 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 24 Solutions
Economics: Principles and Policy (MindTap Course List)
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- 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_forwardIn Ghana, the capital share of GDP is about 40 percent, the average growth in output is about 2 percent per year, the depreciation rate is about 3 percent per year, and the capital–output ratio is about 1.5. Suppose that the production function is Cobb–Douglas and that Ghana has been in a steady state.a. What must the saving rate be in the initial steady state? [Hint: Use the steady-state relationship, sy = (δ + n + g)k.]b. What is the marginal product of capital in the initial steady state?c. Suppose that public policy alters the saving rate so that the economy reaches the Golden Rule level of capital. What will the marginal product of capital be at the Golden Rule steady state? Compare the marginal product at the Golden Rule steady state to the marginal productin the initial steady state. Explain.d. What will the capital–output ratio be at the Golden Rule steady state? (Hint: For the Cobb–Douglas production function, the capital–output ratio is related to the marginal product of…arrow_forward
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