If a tsunami washes across an island nation, the output loss will be greater than that predicted using a production function.

Question

Quizplus · Accepted Answer

A tsunami can cause significant damage to both physical and human capital, such as infrastructure, buildings, and equipment. This can lead to a larger loss in output than what is predicted by a typical production function model, which only accounts for factors like labor and capital inputs. The destruction caused by a natural disaster can also have long-term effects on a country's economy, such as reduced investment and lower productivity.

If a Tsunami Washes Across an Island Nation, the Output