Question

In: Economics

Suppose that the United States initially has a lower capital rental rate (r) than Mexico. What...

Suppose that the United States initially has a lower capital rental rate (r) than Mexico.

  • 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 total return to labor owners.
  • Identify the net change in world output in the above graph.
  • If the source country restricts the amount of outward FDI, how would the net change in world output identified in part (c) above be affected? Illustrate your answer in the same graph above.
  • Discussion: what policy could governments use to attract inward FDI? What are the tradeoffs of such policy?

Solutions

Expert Solution

According to me-


Related Solutions

Suppose that the United States initially has a lower capital rental rate (r) than Mexico. What...
Suppose that the United States initially has a lower capital rental rate (r) than Mexico. 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 total return to labor owners. Identify the net change in world output in the above graph. If the source country restricts the amount of outward FDI, how would the net change in world output identified...
Mexico tends to have much higher inflation rate than the United States and also much higher...
Mexico tends to have much higher inflation rate than the United States and also much higher interest rate than the United States. Inflation and interest rates are much more volatile in Mexico than in industrialized countries. The value of the Mexican peso is typically more volatile than the currencies of industrialized countries from a US perspective; it has typically depreciated from one year to the next, but the degree of depreciation has varied substantially. The bid/ask spread tends to be...
Initially a​ firm's wage is w = $42 and its rental cost of capital is r...
Initially a​ firm's wage is w = $42 and its rental cost of capital is r = $42. After its wage rate doubles, how do its isocost lines​ change? Let L represent labor and K capital. Graph an isocost line at the original​ wage, when the wage is w = $42. Label this line "I1" Graph an isocost line at the new​ wage, when the wage doubles. Label this line "I2"
Suppose steel manufacturers in the United States earned a rate of return on capital of 4%....
Suppose steel manufacturers in the United States earned a rate of return on capital of 4%. Pretend that there are many producers of steels, steel is a homogenous product and there is free entry an exit into the steel industry. Further suppose that the average rate of return on capital for ALL manufacturing was 10%. a) What would you expect to happen to the number of firms in the steel industry? Explain why. Now, suppose that the US bans all...
Why does the unemployment rate in the United States tend to be lower than the unemployment rate in Canada given similar economic performance?
Why does the unemployment rate in the United States tend to be lower than the unemployment rate in Canada given similar economic performance?
Suppose the United States and Mexico both produce hamburgers and tacos. The combinations of the two...
Suppose the United States and Mexico both produce hamburgers and tacos. The combinations of the two goods that each country can produce in one day are presented in the table below. United States Mexico Hamburgers​ (in tons) Tacos​ (in tons) Hamburgers​ (in tons) Tacos​ (in tons) 0 144 0 120 80 96 8 80 160 48 16 40 240 0 24 0 Which country has an absolute advantage in producing​ tacos?  The United States Mexico .Which country has a comparative...
Assume the following information for the United States and Mexico. The United States can produce a...
Assume the following information for the United States and Mexico. The United States can produce a maximum of 600 bushels of barley or a maximum of 600 bushels of corn. Mexico can produce a maximum of 200 bushels of barley or 400 bushels of corn. Which country has a comparative advantage in the production of barley? Which country has a comparative advantage in the production of Corn? Show your work for the calculation of opportunity cost. (4 Points)
Suppose that country A initially has a lower income-per-head than country B. Then for several years...
Suppose that country A initially has a lower income-per-head than country B. Then for several years country A saves and invests more of its income. Explain and illustrate the effect of this change over time.
what is the major outcome of the United States v. Mexico case in 1982?
what is the major outcome of the United States v. Mexico case in 1982?
Suppose that the United States and Mexico have the following productive ability: Production per Hour Silicon...
Suppose that the United States and Mexico have the following productive ability: Production per Hour Silicon Chips Cars United States 100 10 Mexico 20 5 ​ A) Which country has an absolute advantage in producing cars? chips? ​ B) Which country would have a comparative advantage in producing cars? chips? ​ C) Assume that the countries are both perfectly rational and their only consideration is maximizing their economic wellness. Will Mexico and the United States specialize and trade? Why? What...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT