Question:
The destruction of capital does not affect k.dot or q.dot to shift since neither are dependent on "K". However K and Q move along these curves. K decreases and moves left from k.star to k1/2. This causes q to exceed 1 and therefore increase to point A. Since q is greater than 1, there is more investment in K since additional capital increases present value of firms profits. This continues in which the economy is on the saddle path and returns to equilibrium.
Author: Daniel Ortega![The destruction of capital does not affect k.dot or q.dot to shift since neither are dependent on "K". However K and Q move along these curves. K decreases and moves left from k.star to k1/2. This causes q to exceed 1 and therefore increase to point A. Since q is greater than 1, there is more investment in K since additional capital increases present value of firms profits. This continues in which the economy is on the saddle path and returns to equilibrium.](https://markdown.memory.com/assets/uploadImageUrl__d1e3fe7c-6214-49ef-aeb4-b89e6fb49e14.jpg)
Answer:
Phase Diagram - War destroys half capital
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Daniel Ortega![Daniel Ortega](https://markdown.memory.com/assets/uploadImageUrl__20ae8c2b-bcdb-43f2-a5bf-98f83c1b047c.jpg)