Question

Many people believe that because wages are lower in developing countries than in developed countries, competition from developing countries in goods traded internationally will soon eliminate large numbers of jobs in developed countries. Currently, developed countries' advanced technology results in higher productivity, which accounts for their higher wages. Advanced technology is being transferred ever more speedily across borders, but even with the latest technology, productivity and wages in developing countries will remain lower than in developed countries for many years because developed countries have better infrastructure and better-educated workers. When productivity in a developing country does catch up, experience suggests that wages there will rise. Some individual firms in developing countries have raised their productivity but kept their wages (which are influenced by average productivity in the country's economy) low. However, in a developing country's economy as a whole, productivity improvements in goods traded internationally are likely to cause an increase in wages. Furthermore, if wages are not allowed to rise, the value of the country's currency will appreciate, which (from the developed countries' point of view) is the equivalent of increased wages in the developing country. And although in the past a few countries have deliberately kept their currencies undervalued, that is now much harder to do in a world where capital moves more freely.

The passage suggests that if the movement of capital in the world were restricted, which of the
following would be likely?
(A) Advanced technology could move more quickly from developed countries to developing countries.
(B) Developed countries could compete more effectively for jobs with developing countries.
(C) A country's average wages could increase without significantly increasing the sophistication of its technology or the value of its currency.
(D) A country's productivity could increase without significantly increasing the value of its currency.
(E) Workers could obtain higher wages by increasing their productivity.

Answer 1

(D) A country's productivity could increase without significantly increasing the value of its currency.

Step-by-step explanation:

"And although in the past a few countries have deliberately kept their currencies undervalued, that is now much harder to do in a world where capital moves more freely."

This last passage indicates that since the movement of capital is not restricted, then developing countries are not able to manipulate their currencies, therefore, if the movement of capital were restricted, then developing countries could manipulate their currencies.