1. Suppose Country A is a small open economy that takes world prices as given. A

Question

1. Suppose Country A is a small open economy that takes world prices as given. A) what would be the effect on wages and rents in A if it were to experience an inflow of foreign capital? Use a diagram AND a table to convey your answer. B) which groups would favor this capital inflow? Which would oppose it? Explain. 1. Suppose Country A is a small open economy that takes world prices as given. A) what would be the effect on wages and rents in A if it were to experience an inflow of foreign capital? Use a diagram AND a table to convey your answer. B) which groups would favor this capital inflow? Which would oppose it? Explain. 1. Suppose Country A is a small open economy that takes world prices as given. A) what would be the effect on wages and rents in A if it were to experience an inflow of foreign capital? Use a diagram AND a table to convey your answer. B) which groups would favor this capital inflow? Which would oppose it? Explain. A) what would be the effect on wages and rents in A if it were to experience an inflow of foreign capital? Use a diagram AND a table to convey your answer. B) which groups would favor this capital inflow? Which would oppose it? Explain.

Explanation / Answer

A) An inflow of foreign capital will shift the VMPL to the right. this will lead to a rise in the wages as labour is more productive now. This will further lead to a decline in rents.

b) Labour group will be happy and supportive. Capitalists will oppose this.

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