A major hurricane passes over an island nation and destroys 25 percent of the buildings and roads.One would expect the country's gross domestic product (GDP)to ________ and the country's marginal product of capital to ________.
A) decrease; decrease
B) increase; increase
C) decrease; increase
D) increase; decrease
E) decrease; remain the same

Question

Quizplus · Accepted Answer

The destruction of buildings and roads would likely decrease the country's GDP due to the loss of infrastructure and economic activity. However, the marginal product of capital would increase because the remaining capital becomes more valuable and productive as it is scarcer relative to labor and other inputs.

A Major Hurricane Passes Over an Island Nation and Destroys