Question

10 . 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 because Americans could receive the returns on the investment made by China and Japan. True False

Answer 1

1. False

Proceeds from foreign investment will actually benefit the domestic capital stock. The Foreign investment has both the macro and micro effects. On macro levels it's beneficial for sectors like exports, imports, investment etc. On micro level it enhances quality of labor force.

Therefore, it was better for USA because foreign investment brought with it increased capital and new business opportunities.

2. False

Returns from an investment goes to the investor itself.In this case these returns went to Japan and China for its investment in US. It would have been better if Americans themselves made the investment because then the returns wouldn't go to a foreign nation.