Multiple Choice
Which of the following is an example of a market failure related to externalities?
89
views
7. Externalities
Externalities: Social Benefits and Social Costs
Multiple Choice
Which of the following are two measures countries can employ to restrict foreign direct investment (FDI)?
A
Imposing capital controls and setting limits on foreign ownership in domestic firms
B
Providing tax incentives for foreign investors and reducing trade barriers
C
Lowering interest rates and promoting free trade agreements
D
Subsidizing domestic industries and increasing government spending on infrastructure
Verified step by step guidance1
Understand that the question asks for measures countries use to restrict, or limit, foreign direct investment (FDI), not to encourage it.
Identify that imposing capital controls is a common restriction method, as it limits the flow of foreign capital into the country.
Recognize that setting limits on foreign ownership in domestic firms restricts how much control foreign investors can have, thus limiting FDI.
Note that providing tax incentives, reducing trade barriers, lowering interest rates, promoting free trade agreements, subsidizing industries, and increasing infrastructure spending are generally policies to encourage investment, not restrict it.
Conclude that the two measures that restrict FDI are imposing capital controls and setting limits on foreign ownership in domestic firms.
Related Videos
Related Practice
