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Output per person in the long run can be higher than before a shock occurs, even...

Output per person in the long run can be higher than before a shock occurs, even if the shock causes the level of output per person to fall immediately.

a. True b. False

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Answer #1

Output per person in the long run can be higher than before a shock occurs, even if the shock causes the level of output per person to fall immediately

Solution: TRUE

Explanation: The Solow model predicts that output per person will increase and that the new steady state will occur: the same level of output per person as before. Thus in the long run output per person in the long run can be higher than before a shock occurs, even the level of output per person reduced in the short run.

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