In the diagram in Question #9 above, if restrictions on capital flows were removed, Capital would move from__________, and this movement would reduce the return to Capital in __________.

Question

Quizplus · Accepted Answer

Capital tends to move from areas of low return to areas of high return. Removing restrictions on capital flows would allow capital to move from country I (where the return is lower) to country II (where the return is higher), thus reducing the return to capital in country II as the increased supply of capital in country II would drive down its return.

In the Diagram in Question #9 Above, If Restrictions on Capital