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Use the Solow diagram to show the impact of a natural disaster that destroys half of a nation's capital stock.
a. Begin with a country in a steady state at Y33 = √(K33) , and show the short-run effects of the natural disaster destroying half of the steady-state level of capital stock, Kss on the Solow diagram.
b. If K1 = ½ Kss,will output fall by half so that output in period one following the shock is Y1 = ½Yss? Explain why or why not.
c. What happens in this country in the immediate future and in the long run?
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