4. Assume that during a war one-quarter of the capital stock is destroyed while three-quarter of the labor force is lost. [16 points]

a. What is the immediate impact on capital per worker (k) and output per person (y) following the loss in inputs? Explain.

b. Assume that the war did not change the saving rate, depreciation rate and growth rate of population. Assume that the economy was in a steady state before the war started. Does the economy return to its before-the-war-steady-state? Explain and draw a Solow graph to illustrate your answer. Label all curves and axes in your graph. Graph (include the changes in k and y from part a)

Explanation:

c. Is the growth rate of output per worker (growth of y) in the transition to the new (or same) steady state after the war smaller or greater than normal? Explain why.