If a natural disaster destroys a large portion of a country's capital stock but the saving and depreciation rates are unchanged,the Solow model predicts that the economy will grow and eventually reach:
A)the same steady-state level of output as it would have before the disaster.
B)a higher steady-state level of output than it would have before the disaster.
C)a lower steady-state level of output than it would have before the disaster.
D)Not enough information is given.
E)None of the above is correct.

Question

Quizplus · Accepted Answer

In the Solow model, if the saving and depreciation rates remain unchanged, the economy will eventually return to the same steady-state level of output as before the disaster, as the capital stock will rebuild over time.

If a Natural Disaster Destroys a Large Portion of a Country's