Question

5. Problems and Applications Q5 In the 1990s and the first two decades of the 2000s, investors from the Asian economies of Japan and China made significant direct and portfolio investments in the United States. At the time, many Americans were unhappy that this investment was occurring. True or False: It was better for the United States not to receive this foreign investment because it shrank the capital stock. True False True or False: It's best for Americans that China and Japan, rather than Americans themselves, made the investment, so that Americans can have more to spend on consumption. True False

Answer 1

1. False
2. False

Step-by-step explanation:

The investment from China and Japan would have increased the capital stock because it would mean that there was more cash for investment products in the United States. It would be false therefore to say that the investments shrank capital stock.

On the other hand, it would have been best that Americans and not the Chinese or the Japanese made the investments because when investments yield returns, those returns are sent to the investors which in this case are in Japan and China which means that more money will be flowing out the United States.