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Suppose that the economy is initially in a steady-state and that some of the nation's capital stock is destroyed because of a natural disaster or a war.

(a) Determine the long-run effects of this on the quantity of capital per worker and on output per worker.

(b) In the short run, does aggregate output grow at a rate higher or lower than the growth rate of the labor force?

(c) After World War II, growth in real GDP in Germany and Japan was very high. How do your results in parts (a) and (b) shed light on this historical experience?

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Joshua Stredder
Joshua StredderLv10
28 Sep 2019

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Related questions

4 . In the discussion of German and Japanese postwar growth, we discussed what happens when part of the capital stock is destroyed in a war. By contast, suppose that a war does not a§ect the capital stock, but that casualties reduce the labor force. Assume the economy was in a steady state before the war and the saving rate is unchanged. a) What is the immediate impact of the war on total output and on output per person? b) What happens subsequently to output per worker in the postwar economy? Is the growth rate of output per worker after the war smaller or greater than it was before the war?

In the discussion of German and Japanese postwar growth, the text describes what happens when part of the capital stock is destroyed in a war. By contrast, suppose that a war does not directly affect the capital stock, but that casualties reduce the labor force. Assume the economy was in a steady state before the war, the saving rate is unchanged, and the rate of population growth after the war is the same as it was before.

a. What is the immediate impact of the war on total output and on output per person?

b. What happens subsequently to output per worker in the postwar economy? Is the growth rate of output per worker after the war smaller or greater than it was before the war?

SOLOW GROWTH MODEL AFTER CAPITAL DESTRUCTIONS

can you explain "Graphically"

a) long run effects on quality of capital per worker and output per worker

b) short run affect on aggregate output growth rate with respect to labor force

c) the effects from a) and b) related to real gdp

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