Consider a Small Open Economy Whose Demand and Domestic Supply

Multiple Choice

Consider a small open economy whose demand and domestic supply of capital relationships are R = 30 - (1/2) K and K = 7R,respectively (where K and R denote capital and its marginal product) .Capital is perfectly mobile internationally,and the yield on capital (R) in the rest of the world is 6.Starting from this situation,suppose that an increase in national savings changes the domestic supply of capital relationship to K = 8R.
I: This country's GNP increases by 36.
II: Labour's share of GNP falls.

A) I is true; II is not.
B) II is true; I is not.
C) Both I and II are true.
D) Neither I nor II is true.