Use the diagram below on capital transfers to answer the question that follows. The return on capital is higher in South Africa than in the UK. Which of the following statements is incorrect? LL ZU N United Kingdom (UK) VMPKn South Africa (RSA) B Total capital stock of UK and RSA R 5 A H T VMPKS
a.
There are two nation, UK and RSA and the combined capital stock is
OA.
b.
In isolation, UK invests OA of capital for a yield of OC. The TP is OFGA and RSA invests O*A of capital for a yield of O*H. The TP is and the combined capital stock is
OA.
b.
In isolation, UK invests 0A of capital for a yield of OC. The TP is OFGA and RSA invests O*A of capital for a yield of O*H. The TP is
O*JMA
© 87% 4
C.
Since UK is capital abundant, the return on capital is low, Capital will move to where it can earn a higher return. In this case, to SA.
Therefore, AB of capital moves from the UK to RSA
d.
With the transfer of capital to RSA, the total return on capital in UK increases from OCGA to ONRA total return on capital in RSA falls from O*HMA to O*TRA
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
