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Foreign Direct Investments

1. When the EU progressed from a "customs union" to a "common market" the "factors of production" were allowed to move freely among member nations. How does this effect a prosperous member country? How does this effect a member country that is relatively poor?

2. Do you anticipate that NAFTA will ever progress from where it is now to a Common Market? Why or why not?

3. What are five important reasons a common currency is important in a trade bloc? Will this happen soon among the US, Canada and Mexico? Why or why not?

4. A: If one Euro = $1.57 and one US dollar = 45 Mexican pesos, how many euros are there is 245 Mexican pesos?
B. Explain the "Big Mac Index" and how it serves to indicate Purchasing Power Parity (PPP) among countries. (P. 331-6) An example will help.

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Step 1
The prosperous member countries were affected because consumers from poorer countries like Greece and Portugal purchased products made in countries like Germany. Factor movements also helped richer countries. Low cost labor was available to richer countries and some rich country companies set up operations in poorer countries to tap low cost raw materials, labor, and investor friendly laws.

Member countries that were relatively poor saw a decline in the economic performance of the poorer economies like Spain, Greece, and Portugal. These countries have reached such a situation that it has become impossible for these countries to re-finance their government debt without assistance of third parties. The poorer countries in the EU faced increasing government debts and there was a downgrading of the government debt In some countries. The free movement of factors of production created favorable conditions for richer countries and difficult conditions for poorer countries.

Step 2
NAFTA will not progress from what it is to a common market. The reasons for ...

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