Assume Zero Population Growth and Zero Technical Change

question 5

Multiple Choice

Assume zero population growth and zero technical change. If an outbreak of war destroys a large portion of a country's capital stock but the saving rate and the rate of depreciation are unchanged, the growth model predicts that output will:

• A) cease to grow.
• B) grow but the new steady state will be at a higher output level than before.
• C) grow but the new steady state will be at a lower output level than before.
• D) decrease to a new steady state.
• E) grow and the new steady state will be at the same output level as before.

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Definitions:

Short Run

A time period in which at least one factor of production is fixed, limiting the ability of a business to adjust fully to market changes.

Skilled Labor

Workers who possess specialized skills, training, and education that are required to perform complex tasks.

Unskilled Labor

Refers to workers who lack specialized training or qualifications, often performing manual or routine tasks.

Marginal Product

The additional output resulting from a one-unit increase in the use of a variable input, while holding all other inputs constant.