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 to receive this foreign investment because it would lead to faster economic growth. True False True or False: It would have been better for Americans to have made this investment because then they would have received the returns on the investment themselves. True False

a) True b) True c) False

Explanation:

a) It is true that Americans were unhappy that investors from the Asian economies of Japan and China were making investments because they thought it would hinder the domestic investment

b) China and Japan were two of the fastest growing economies in that era. Investment by them meant greater capital bringing more job opportunities and faster economic growth.

c) Yes, had the Americans made this investment, they would have received the returns on investment themselves but as foreign investment brings foreign skills and resources in the host country fueling innovation, developing work force, allowing export of American-made goods to other countries. Foreign Investment always brings benefits to host as well as home country and has broader useful impact than if the country relies on domestic investment only