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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

When the Japanese car maker Toyota expands one of its car factories in the United States, what is the likely impact of this event on the gross domestic product and gross national product of the United States?

a. GDP rises and GNP falls.

b. GNP rises and GDP falls.

c. GDP shows a larger increase than GNP.

d. GNP shows a larger increase than GDP.

To determine

The effect of foreign investment.

Explanation

Option (d)

An investment by Japan in the U.S. will increase the capital stock, leading to higher productivity and wages. Hence, this results in economic growth (GNP). The returns of the investment will be flown back to Japan; the increase in GDP is lower. Thus, GNP shows a larger increase than GDP. Therefore, option ‘d’ is correct.

Option (a)

Foreign investment will increase the capital stock, leading to higher productivity and wages; this results in greater GNP...

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