If a war destroys a large portion of a country's capital stock but the saving rate is unchanged, the Solow model predicts output will grow and that the new steady state will approach: A. a higher output level than before. B. the same output level as before. C. a lower output level than before. D. the Golden Rule output level.

Question

Gabriel Davila

Business

25 July, 16:13

If a war destroys a large portion of a country's capital stock but the saving rate is unchanged, the Solow model predicts output will grow and that the new steady state will approach: A. a higher output level than before. B. the same output level as before. C. a lower output level than before. D. the Golden Rule output level.

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Answers (1)

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Reed Garza · Answer 1

B. The same output level as before.

Explanation:

If there is a war broke out in a country and because of the war a large potion of the country's capital stock is destroyed but the thing that is unchanged is saving rate.

So according to the solow model the output will grow and the steady state that is new will be the same level of output as before.