Consider a Small Open Economy Whose Demand and Domestic Supply

question 61

Multiple Choice

Consider a small open economy whose demand and domestic supply of capital relationships are R = 30 - (1/2) K and K = 7R,respectively (where K and R denote capital and its marginal product) .Capital is perfectly mobile internationally,and the yield on capital (R) in the rest of the world is 6.Starting from this situation,suppose that an increase in national savings changes the domestic supply of capital relationship to K = 8R.
I: This country's GNP increases by 36.
II: Labour's share of GNP falls.

• A) I is true; II is not.
• B) II is true; I is not.
• C) Both I and II are true.
• D) Neither I nor II is true.

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Definitions:

Secondary

In psychology, refers to stimuli or reinforcers that acquire their effectiveness through association with primary reinforcers.

Instrumental Conditioning

A learning process through which the strength of a behavior is modified by its consequences, such as rewards or punishments.

Operant Conditioning

A learning process where behavior is modified by consequences, such as rewards for positive behavior or punishments for negative behavior.

Constrain

A limitation or restriction on actions or outcomes.