Most of the LDCs find it difficult to accumulate capital goods because

A) the terms of trade prohibit the inflow of private capital from the advanced nations.
B) it is very difficult to restrict consumption in order to free resources for capital goods production.
C) domestic monetary policies designed to achieve price stability result in low interest.
D) investment is interest inelastic in LDCs.

Question

Mapula Lotty · Accepted Answer

Final Answer : B, Explanation :  LDCs often have high levels of poverty and low standards of living, making it difficult to persuade the population to save and invest in capital goods rather than consumer goods. This is compounded by the fact that most people in LDCs do not have access to financial services to save and invest their income. Additionally, the lack of infrastructure and education in LDCs often means that there is a scarcity of skilled labor, which makes it difficult for firms to produce capital goods domestically. Therefore, LDCs have to rely on foreign capital, which is often not forthcoming due to unfavorable terms of trade and low investment incentives.

Definitions

Learning Objectives

Learning Objectives

Related questions