In the Solow Model, an Earthquake That Destroys Half of a Nation's

question 60

Multiple Choice

In the Solow model, an earthquake that destroys half of a nation's capital stock will cause:

• A) an increase in the country's growth rate in the years following the earthquake.
• B) a decrease in the country's growth rate in the years following the earthquake.
• C) a decrease in the country's steady-state capital stock.
• D) an increase in the country's steady-state output level.

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Definitions:

Multiplier Value

A factor that quantifies the impact of a change in some economic activity on the rest of the economy.

MPC (Marginal Propensity to Consume)

A measure of the change in consumption resulting from a change in income; specifically, the proportion of additional income that is spent on consumption.

Multiplier

A factor by which an initial change in spending will alter total economic output by a greater amount.

Multiplier Effect

The proportionate increase in final income that results from an injection of spending (initial increase in spending), typically influencing the level of national income and output.