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Suppose that New Zealand receives an inflow of foreign direct investment. Additional, assume that labor and...

Suppose that New Zealand receives an inflow of foreign direct investment. Additional, assume that labor and capital used in production of corn and steel. Suppose that steel is capital intensive as compared with corn. Using the long-run specific factors model, explain what happens to the output of each good.

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Ans. If New Zealand receives an inflow of FDI , then the output of steel would increase because it's capital intensive and output of corn would decrease in the long run using the Long Run Specific Factors model.

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