1.2.2 Loss of lives 0 Other things constant, casualties would simply raise the capitallabor ratio to a level (call it k3) above its previous steadystate value (km) . o The law of diminishing returns then implies a reduction in the marginal productivity of capital (M PK ) and thus the rental return to capital, which would then trigger a drop in capital investment 7 at a rate slower than labor (population) growth. In other words, K as well as k (E K/N) would both decrease, and so would output Y and y (E Y/ N ) - c As a result of capital decumulation, the economy would dwindle back down to its original steady state. 0 Show these transitional dynamics in a diagram similar to the one on pp.15