Two nations each own 50% of the capital of the other nation (diversification). What is the situation when labor composes more than 50% of available resources?
A) In order to achieve perfect diversification, labor must move from one nation to the other.
B) No gain will occur from the diversification.
C) The risk from economic shock will be eliminated by the diversification of assets.
D) Some risk from economic shocks can be eliminated, but not all.

Question

Quizplus · Accepted Answer

Diversification of capital ownership may help to reduce some risk from economic shocks, but if labor still composes more than 50% of available resources, there may still be some risk involved. Therefore, Option D is the best choice. Option A is not necessarily true as labor mobility may not always be feasible or practical. Option B is not accurate as diversification can still provide some benefits. Option C oversimplifies the situation and does not take into account other factors that may contribute to economic shocks.

Two Nations Each Own 50% of the Capital of the Other