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Q1. (25 points) Suppose that Brazil initially has a higher capital rental rate (r) than the United States. a.What would be the direction of foreign

Q1. (25 points) Suppose that Brazil initially has a higher capital rental rate (r) than the United States.

a.What would be the direction of foreign direct investment (FDI)?

b.Use a world-capital-market graph to show the effects of FDI on the two countries' rental rates of capital, GDP, and return to labor owners.

c.Identify the net change in world output in the above graph.

d.How would the answer in part (c) change when the United States restricts the amount of FDI?

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