Hi,

When using this graph to answer 1.The bubonic plague struck Europe in the mid-fourteenth century. Over the next century it killed around one third of the population of Europe. Use a suitable diagram (e.g. Blanchard, p. 242, fig. 11-2) to explain the impact of the plague on the European economy. is this the correct explanation?

When there is a large decrease in the population this will cause a decrease in the economies total output. This is because the labour force will decrease and in return so will the output and capital within the country.We see this as although output decreases at a slower rate than the labour force, less people in the labour force will still result in a lower output rate. Although overall output is seen to decrease the output per person will have been seen to increase, shown by how the F(K/N) line is steeper with less workers (representing that as workers increase output moves less than proportionately.)Investment per worker will also increase, shown by the steepness of SF(K,/N) when there are less workers. Therefore overall the economy will be worse off as the economy will move from its steady state or higher rate of output and capital per worker to lower shown by Y*/M decreasing to Y1/N and K*/N moving to K1/N.

Depreciation per worker OK,/N Output per worker, Y/N Output per worker f(K /N) Y*/N B Investment per worker sf(K /N) C - - D A (Ko /N) K*/N Capital per worker, K/N