Consider an economy described by the production function F(K, L) = K± (EL) 1± . Originally, the economy was at the steady state. There was a one-time outbreak of disease that killed 5 percent of the population. Population growth then returns to normal after that. Assume there is no technology growth in this economy.
A. What is the immediate effect of the disease outbreak on total output? What is the immediate effect on output per worker? [It is sufficient to give qualitative description.]
B. How does the disease outbreak affect the steady-state level of capital per worker?
C. What is the growth rate of output per worker immediately after the disease outbreak compared to that before the outbreak? [It is sufficient to give qualitative description.]
D. Suppose that when the disease outbreak occurred, the economy was also hit by a natural disaster that destroyed capital stock by 5 percent as well. What is the growth rate of output per worker after the incidents?
Consider an economy described by the production function F(K, L) = K± (EL) 1± . Originally, the economy was at the steady state. There was a one-time outbreak of disease that killed 5 percent of the population. Population growth then returns to normal after that. Assume there is no technology growth in this economy.
A. What is the immediate effect of the disease outbreak on total output? What is the immediate effect on output per worker? [It is sufficient to give qualitative description.]
B. How does the disease outbreak affect the steady-state level of capital per worker?
C. What is the growth rate of output per worker immediately after the disease outbreak compared to that before the outbreak? [It is sufficient to give qualitative description.]
D. Suppose that when the disease outbreak occurred, the economy was also hit by a natural disaster that destroyed capital stock by 5 percent as well. What is the growth rate of output per worker after the incidents?
