Suppose that the economy is initially in a steady state and that some of the nation’s capital stock is destroyed because of a natural disaster or a war.
(a) Determine the long-run effects of this on the quantity of capital per worker and on output per worker.
(b) In the short run, does aggregate output grow at a rate higher or lower than the growth rate of the labor force?
(c) After World War II, growth in real GDP in Germany and Japan was very high. How do your results in parts (a) and (b) shed light on this historical experience?