Suppose there are two very similar countries (call them G and H). Both countries

Question

Suppose there are two very similar countries (call them G and H). Both countries have the same population and both are experiencing population growth at the same rate (that is, N and g subscript N are identical in both countries). Both countries depreciate capital at the same rate, the both have the same savings rate, they both have the same technology, and technological progress happens at the same rate in both countries. Suppose that currently both countries are in steady state, when an earthquake destroys half of the capital stock of Country G, and also kills half of its population. We would expect (Select all that apply) That Country G's output per effective worker (Y/AN) will grow faster than Country H's only for some time. That Country H's output per effective worker (Y/AN) will grow faster than Country G's only for some time. That Country H's output (Y) will be higher than Country G's only for some time. That Country H's output (Y) will be higher than Country G's permanently. Suppose there are two very similar countries (call them G and H). Both countries have the same population and both are experiencing population growth at the same rate (that is, N and g subscript N are identical in both countries). Both countries depreciate capital at the same rate, the both have the same savings rate, they both have the same technology, and technological progress happens at the same rate in both countries. Suppose that currently both countries are in steady state, when an earthquake destroys half of the capital stock of Country G, but does not kill any of its population. We would expect (Select all that apply) That Country G's output per effective worker (Y/AN) will grow faster than Country H's only for some time. That Country H's output per effective worker (Y/AN) will grow faster than Country G's only for some time. That Country H's output (Y) will be higher than Country G's only for some time. That Country H's output (Y) will be higher than Country G's permanently.

Explanation / Answer

Answer 1:

Since the population growth rate has declined, it will impact the country's output. Output growth rate will decline and thus Y will be less than country H. Option D.

Answer 2:

This will lead to fall in the capital per effective worker. Thus, Option B.

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