Answer to Question #62162 in Macroeconomics for Beth Y.

Question #62162
Assume realistically that the U.S. receives capital flows from the rest of world. In addition, assume that foreign capital increases the level of total factor productivity from 1 to 2, by funding research and developments of new technologies. Do foreign capital inflows shift the supply curve, or the demand curve, or both curves in the capital market? Depict a diagram and explain effects of foreign capital inflows on the MPK, and the real rental rate of capital.
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Expert's answer
2016-09-20T07:56:03-0400
If the U.S. receives capital flows from the rest of world and foreign capital increases the level of total factor productivity from 1 to 2 by funding research and developments of new technologies, then foreign capital inflows will shift the supply curve rightward in the capital market, because the foreign caapital inflows will increase. As a result the real rental rate of capital will decrease.

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