Suppose that a war is fought will biological weapons. The weapons destroy people but not capital. What is likely to happen to equilibrium wages and rental rates after the war when compared to their values before the war ?
Correct answer: A. Wages rise, and rental rates fall
- A. Wages rise, and rental rates fall
- B. Wages rise, and rental rates rise
- C. Wages fall, and rental rates rise
- D. Wages fall, and rental rates fall
Explanation
The destruction of people reduces labor supply, pushing wages upward. Since the surviving capital becomes relatively more abundant, its rental rate falls.
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