4. During the 1980s, 1990s, and the first decade of the 20 th century, the Unite

Q: 4. During the 1980s, 1990s, and the first decade of the 20 th century, the Unite

a. As the supply of capital rises, the supply curve in the market for capital shifts rightwards. The new equilibrium occurs at a lower rental price of capital and a higher quantity of capital. b. As investment rises, the demand for labor also rises. As a consequence to that, the labor demand curve shifts rightward and the new equilibrium occurs at a higher wage and a higher quantity of labor.

ID: 1194631 • Letter: 4

Question

4. During the 1980s, 1990s, and the first decade of the 20th century, the United States experienced a significant inflow of capital from abroad. For example, Toyota, BMW, and other foreign car companies built auto plants in the United States.

a. Using a diagram of the U.S. capital market, show the effect of this inflow on the rental price of capital in the Unites States and on the quantity of capital in use.

b. Using a diagram of the U.S. labor market, show the effect of the capital inflow on the average wage paid to U.S. workers.

Explanation / Answer

As the supply of capital rises, the supply curve in the market for capital shifts rightwards. The new equilibrium occurs at a lower rental price of capital and a higher quantity of capital.

b. As investment rises, the demand for labor also rises. As a consequence to that, the labor demand curve shifts rightward and the new equilibrium occurs at a higher wage and a higher quantity of labor.

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4. During the 1980s, 1990s, and the first decade of the 20 th century, the Unite

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