In the Diagram in Question #9 Above, If Restrictions on Capital

question 18

Multiple Choice

In the diagram in Question #9 above, if restrictions on capital flows were removed and capital was allowed to flow from the low-return country to the high-return country, then total output in country I __________.

• A) would increase by the amount of area K₂EAK₁
• B) would decrease by the amount of area K₂EFK₁
• C) would decrease by the amount of area K₂EGK₁
• D) would decrease by the amount of area EFG.

---

Definitions:

Taxable Income

The amount of income that is used to calculate how much tax an individual or a company owes to the government.

Progressive

Referring to policies or tax rates that increase proportionally with the ability to pay, targeting a higher burden on wealthier entities or individuals.

Price Elasticity

A measure of how much the quantity demanded of a good responds to a change in the price of that good, often used to understand the sensitivity of demand in relation to price changes.

Excise Tax

A form of taxation applied on certain goods, services, or activities, often included in the price of products like gasoline, alcohol, and tobacco.