The 2003 Iraqi war destroyed large amounts of capital. Later, insurgent activity continued to destroy capital and created instability in the government. Today, hostilities have waned and the government has become more stable. According to the Solow growth model, over the next few years we would expect to see growth rates in Iraq to be _____ those of high-income countries with similar institutions followed by growth rates that are _______ the growth rates in those countries.
A) higher than; much higher than
B) lower than; about the same as
C) higher than; about the same as
D) about the same as; lower than

Question

Quizplus · Accepted Answer

According to the Solow growth model, after a period of destruction, a country can experience higher growth rates as it rebuilds its capital stock. Once the capital stock is rebuilt, growth rates tend to stabilize and become similar to those of high-income countries with similar institutions.

The 2003 Iraqi War Destroyed Large Amounts of Capital