\"Consider an inflow of immigrants into the country, resulting in an increase in

Question

"Consider an inflow of immigrants into the country, resulting in an increase in the labor supply. Use the production model (where capital and labor are treated as constant values) to analyze changes in the equilibrium of the economy.

In the capital market the supply shifts to the RIGHT/LEFT/NO SHIFT and the demand shifts to the RIGHT/LEFT/NO SHIFT. As a result the rental rate will INCREASE/DECREASE/NO CHANGE and the amount of capital used by employers will INCREASE/DECREASE/NO CHANGE."

A) No shift, Right, Increase, No change"

B) "Right, No Shift, Increase, Increase"

Explanation / Answer

Correct Answer:
A

With immigration, the supply of capital, will not increase, but demand will increase and shift to the right. Due to the increase in demand of capital, the rental rate of capital, will increase and it will act as a discouragement to the firms. It will make the firms to stick to their long term plans and capital uses by employers will not change.

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