Consider two hypothetical nations, Solowia and Growia, which are defeated in wars. These two nations were suffered from wars differently; the damage is on capital stock in Solowia, while the damage is on human lives (and thus the number of workers) in Growia. Complete the table below for the effects (direction only, not size, such as "increased", "decreased", "unchanged", and "ambiguous") of war damage on
i. Post-war (immediately after the war) aggregate output level, Y
ii. Post-war output per worker level, y
iii. Post-war wage of labor, w (hint: it is determined by marginal product of labor)
iv. Post-war rental rate, r (hint: it is determined by marginal product of capital)
v. Post-war growth rate of output per worker
in relative to pre-war levels and rates in Solowia and Growia respectively. Then, support your answer in words and/or figure. We assume that the Solowia and Growia were at their steady states before the war and there have been no changes in the savings rates, depreciation rates, and population growth rates. We disregard exogenous technological progress (g=0).
|
|
Solowia
|
Growia
|
|
i. post-war aggregate output level, Y
|
|
|
|
ii. post-war output per worker level, y
|
|
|
|
iii. post-war wage of labor, w
|
|
|
|
iv. post-war rental rate, r
|
|
|
|
v. post-war growth rate of output per worker
|
|
|