You Are Given the Following Dornbusch-Fischer-Samuelson (DFS) Graph, Where A₁

question 19

Multiple Choice

You are given the following Dornbusch-Fischer-Samuelson (DFS) graph, where a₁ = the Labor-time needed per unit of output in any given industry in the home country, a₂ = the Labor-time needed per unit of output in any given industry in the foreign country, W₁ = The wage rate in the home country, and W₂ = the wage rate in the foreign country. The Exchange rate e is assumed = 1.

FIGURE 1
In this Dornbusch-Fischer-Samuelson graph, moving to the right along the A line indicates goods in which the __________ country has greater relative efficiency; further, The introduction of technical progress in the foreign country would, other things equal, be Reflected in __________ shift of the curve.

• A) home; an upward
• B) home; a downward
• C) foreign; an upward
• D) foreign; a downward

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Definitions:

Net Capital Outflow

The net flow of funds invested abroad by a country, over a specific time period, typically calculated as the difference between domestic savings and investment.

GDP

Gross Domestic Product (GDP) is the total monetary value of all goods and services produced within a country's borders in a specific time period, serving as a broad indicator of economic health.

Consumption Expenditures

The total amount spent by consumers on goods and services.

Net Capital Outflow

The investment gap where residents of a country engage in foreign asset acquisition versus foreign entities buying up local assets.