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Effects of capital inflow

During the 1980s, 1990s, and the first decade of the 21st 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 US capital market, show the effect of this inflow on the rental price of capital in the United States and on the quantity of capital in use.
b) Using a diagram of the US labor market, show the effect of the capital inflow on the average wage paid to US workers.

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a. The effect of foreign capital on the U.S. capital market is to shift the supply curve outward. See the attached figure. Supply shifts outward from S1 to S2. This ...

Solution Summary

Effect of capital inflows on rental price of capital and average wages.

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