Suppose that currently both countries are in steady state, when an earthquake de

Question

Suppose that currently both countries are in steady state, when an earthquake destroys half of the capital stock of Country E, and also kills half of its population. We would expect

That Country G's output per effective worker will grow faster than Country H's only for some time.

That Country H's output per worker will grow faster than Country G's only for some time.

That Country H's output will be higher than Country G's only for some time.

That Country H's output will be higher than Country G's permanently.

Explanation / Answer

According to solow model population growth must be stable but in this case population has decreased by 50% so this is an unexpected shock and due to this production function will shift as a result country which is affected by the earthquake will produce less than the another country.

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