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# Completely clueless on this one 1)foreign investment is

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Manager
Joined: 12 Jul 2003
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Completely clueless on this one 1)foreign investment is [#permalink]  12 May 2005, 22:26
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Completely clueless on this one

1)foreign investment is composed of direct investment transactions (investment in plant, equipment and land)and securities investment transactions.Throughout the post world war II period, net increases in US direct investment in europe(funds outflows) exceeded net new european direct investment in the US
Each of the following could help account for this trend except

a)Land values in europe were increasing at a faster rate than in the US
b)Duties on imported goods in europe were higher than those imposed by the US
c)The cost of labour was consistantly lower inh europe than US
d)Labor mobility was much higher in the US than in europe
e)Corporate liquidity was lower in europe than un US

2)At a political rally at Jefferson stadium, cadidate smith exclaimed:"nearly everyone at the rally is behind me.It looks like im going to be elected".

Which of the following best supports the above conclusion
a)Smith's opponent also appeared at the rally
b) the rally was attended by almost all residents of smith's constituency
c)smith was never defeated in an election
d)Smith was supported by the local mayor
e)People always vote their emotions

Best.
Senior Manager
Joined: 10 Nov 2004
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1. I'll pick B.
Duties on imported goods in europe were higher than those imposed by the US

It has nothing to do with foreign investment. Avn even if it does, it would weaken the conclusion.

2. B.
All present in the rally supported Smith.
Smith wins the election.
=> No one else besides the ones in the rally voted.

B says the same.
Manager
Joined: 12 Jul 2003
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the answers are d and b.

could we have a more detailed analysis on the first one.

Best.
Director
Joined: 18 Apr 2005
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Location: Canuckland
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a)Land values in europe were increasing at a faster rate than in the US
HIgher rates of investment drives land values up

b)Duties on imported goods in europe were higher than those imposed by the US
Market access, since tariffs are higher in Europe, it's better to go there directly and direct invest

c)The cost of labour was consistantly lower inh europe than US
Lower labor costs - more investment

d)Labor mobility was much higher in the US than in europe
Higher labor mobility is good for business, but since it was higher in the US, this goes agains the trend

e)Corporate liquidity was lower in europe than un US
Investment is more liquid, good. Liquidation costs are lower.
Director
Joined: 18 Apr 2005
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It's a tough question, I won't probably be able to do it on the exam. I don't think even pro economists wil get it right in 1.5 min.
Manager
Joined: 04 May 2005
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Location: Austin, Texas
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sparky wrote:
It's a tough question, I won't probably be able to do it on the exam. I don't think even pro economists wil get it right in 1.5 min.

Sparky's analysis is right-on (I'd only add for the last distractor, if Europe corporations are illiquid, that cries out for a cash infusion, encouraging investment from outside). However, this is SUCH a technically tough question -- requiring some understanding of Economics terms and some actual thinking -- that it strikes me as quite inappropriate as a GMAT question. Bet it didn't come from an Official Guide...

(Question 2 is more charactersistic of an ETS question though).
Director
Joined: 05 Jan 2005
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1.
2. (E)

Refuting (B): It says... the rally was attended by almost all residents of smith's constituency.

What if all residents of the consistuency of smith's rival attended, and this no. was higher than the no. in smith's constituency?
Manager
Joined: 12 Jul 2003
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u bet its a tough question sparky.im with u.

what do u mean by labour mobility and corporate liquidity? i still havent understood d and e very well.

Yes its not from official gmat guide.

Best.
Director
Joined: 18 Apr 2005
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labour mobility - how fast labour can reallocate
liquidity - how fast you can turn things into cash
Manager
Joined: 12 Jul 2003
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Kudos [?]: 15 [0], given: 0

Best.
Director
Joined: 05 Jan 2005
Posts: 561
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Kudos [?]: 12 [0], given: 0

Arsene_Wenger wrote:
1.
2. (E)

Refuting (B): It says... the rally was attended by almost all residents of smith's constituency.

What if all residents of the consistuency of smith's rival attended, and this no. was higher than the no. in smith's constituency?

Oh gosh..............what was i thinking?
Senior Manager
Joined: 10 Dec 2004
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I think its "B"

a) Land values in europe were increasing at a faster rate than in the US

Increase in land values, may have made the US investment higher.

b)Duties on imported goods in europe were higher than those imposed by the US
Then, europe should be making more investments or US should be importing more.. this statment doesn;t help see thee trend.

c)The cost of labour was consistantly lower inh europe than US

and hence more investment
d)Labor mobility was much higher in the US than in europe
that's why they invested more in europe.

e)Corporate liquidity was lower in europe than un US

and hence they could not make more investments in US
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