A country loses much of its capital stock to a war.
a. What effects should this event have on the country's current employment, output, and real wage?
b. What effect will the loss of capital have on desired investment?
c. The effects on desired national saving of the wartime losses are ambiguous. Give one reason for desired saving to rise and one reason for it to fall.
d. Assume that desired saving does not change. What effect does the loss of capital have on the country's real interest rate and the quantity of investment?