Suppose That Country a Produces Mostly Consumption Goods and Few

question 78

Multiple Choice

Suppose that country A produces mostly consumption goods and few investment goods, while country B produces mostly investment goods with few consumption goods. Other things constant, which of the following is most likely to happen in the future?

• A) The per capita income of country A will grow more rapidly than country B.
• B) The population of country B will grow more rapidly than country A.
• C) The production possibilities curve (PPC) of country B will shift out more rapidly than the PPC of country A.
• D) The production possibilities curve (PPC) of country A will shift out more rapidly than the PPC of country B.

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Definitions:

Marginal Propensity

The ratio of the change in an economic variable (such as consumption or savings) in response to a change in another variable (such as income).

Investment Demand Curve

A graph that illustrates the inverse relationship between the rate of interest and the amount of investment demanded, holding all else constant.

Market Interest Rate

The prevailing rate at which borrowers can obtain loans and lenders receive compensation for their investment in the broader financial market, influenced by supply and demand, inflation, and central bank policies.

Business Expectations

Involves the outlook that businesses have regarding future economic conditions, influencing their decisions on investment, hiring, and production.