In the diagram in Question #9 above, if restrictions on capital flows were removed and capital was allowed to flow freely from the low-return country to the high-return country, then world output would rise by the amount of area __________.

Question

Quizplus · Accepted Answer

If restrictions on capital flows were removed and capital was allowed to flow freely from the low-return country to the high-return country, then we would see an increase in investment in the high-return country and a decrease in investment in the low-return country.
As a result, the production possibility frontier (PPF) of both countries would shift outward, with the high-return country experiencing a larger outward shift than the low-return country.
The area of increase in world output would be the difference between the areas EAG and EAF, which is equal to area C.

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