Question

page 3 3. a. Given that a country at steady state engages in a cross border war with its neighbour and suffers significant infrastructure damage, illustrate and explain what will happen to the country's capital stock and output per worker if it maintains its 5 marks saving rate post-war. b. Given the scenario above, illustrate and explain what will happen to the country's capital stock and output per worker if it increases its saving rate after 10 years. 5 marks c. Favorable economic conditions have driven many Caribbean nationals seeking a better standard of living to migrate to Trinidad and Tobago. In the context of the Solow growth model, illustrate and explain the impact of increased migrant workers on Trinidad and Tobago's steady state capital and output per worker. 5 marks] d. Using the Solow growth analysis, illustrate and explain the welfare maximizing position an economy which experiences no growth in its population may want to 5 marks] operate.

Answer 1

A). If any country engages in war with its neighbour country then, the countries may suffer the following losses:

• Loss of infrastructure
• Loss of human capital in the form of its army or may be its civilians.
• Loss of capital and finances
• Loss of peace in the country
• Displacement of people from one place to another
• Labour loss as the there are some company of neighbouring country which is now engaged in war.
• Political instability, Etc.

For example:

If nation A and B are engaged in war then the countries will suffer the abovementioned losses then, instead of saving, the countries will be more engaged in recovering the losses and rebuilding the peace that existed before the war.

Even if it manages to save, then the capital stock would be very less due to war and the output of the workers would also reduce and government has to encourage them and assure them the good facilities pot war.

B). If the country saves for consecutive 10 year, then it would be able to build the good capital stock and would manage to increase the output of worker. The country would be now able to save and instead of putting its capital in fixing the damages done by war, it would now be able to put its capital in building infrastructure, employment, fiscal deficits, export and import etc.