Question #33
Reading: Reading 6 Economic Growth
PDF File: Reading 6 Economic Growth.pdf
Page: 15
Status: Unattempted
Correct Answer: B
Question
Bob Forster makes the following statements regarding economic growth theories and trade barriers Statement 1 Removing trade barriers and allowing the free flow of capital often leads to countries specializing in industries where they have comparative advantage Statement 2 Developing economies that have not reached the point of significant diminishing returns to capital can attract investment, leading to development of their economy and an eventual slowing of growth Which of Forster's comments are most likely correct?
Answer Choices:
A. Statement 1 only
B. Both statements are correct
C. Statement 2 only
Explanation
Both statements are correct. Countries are able to focus on comparative advantage when
free trade is allowed. Developing economies will see a slowing of growth, and increased
investment leads to a convergence to the steady state growth rate of developed
economies.