If Mexico has 8% of capital per labor of the U.S. level, it is likely that under the simple model,
A) capital will flow into the United States because it has more capital.
B) Mexico will never achieve the capital-labor ratio of the United States.
C) U.S. capital per labor will decline to the level of Mexico.
D) capital will flow into Mexico because the MPK of capital is higher in Mexico.

Question

Quizplus · Accepted Answer

Under the simple model of capital flow, capital tends to flow from countries with a lower marginal product of capital (MPK) to those with a higher MPK. Since Mexico has only 8% of the capital per labor of the U.S. level, it implies that the MPK in Mexico is likely higher, attracting capital to flow into Mexico for higher returns.

If Mexico Has 8% of Capital Per Labor of the U.S