Suppose that currently both countries are in steady state, when an earthquake hi

Question

Suppose that currently both countries are in steady state, when an earthquake hits both countris. In country G it destroys half of the capital stock, but does not kill any of its population. In country H it kills half of the population, but it does not affect the country's capital stock. We would expect

That Country G will experience a period of increase in capital per effective worker .

That Country H will experience a period of increase in capital per effective worker .

That Country G will experience a period of decrease in capital per effective worker .

That Country H will experience a period of decrease in capital per effective worker .

Explanation / Answer

Since population of country H has decreased by 50% overhead capital will increase. So country H will experience growth in per head capital and similarly country G will face decrease in Per head cap[ital.

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