Answer to Question #187941 in Macroeconomics for Lilith

Question

 Some people have argued that the wartime destruction of capital goods stimulated the postwar economic growth in Japan and (the former West) Germany.

(1) Does it follow that losing a war is an economic benefit?

(2) What about the loss of lives in the war? In terms of their e§ects on capital accumulation and growth, in what ways are casualties di§erent from capital losses?

Answer 1

Solution:

1.). Losing a war has serious economic costs to a country especially if the war is taking place in your country. These economic costs include loss of buildings, infrastructure, a decline in the working population, uncertainty, rise in debt, and disruption to normal economic activity.

Although, from some outlooks, war can also be beneficial to the economy in terms of creating a high demand for goods and services, full employment opportunities, increased rate of innovation, profits for businesses, and higher economic growth.

 

2.). The loss of lives in a war is an economic loss to a country due to the loss or decline of the working population. The country will struggle to find employees to work in its various industries due to loss of human capital, which will, in turn, affect productivity and profit levels, including a decline in economic growth.

Casualties are the loss of human capital leading to a decline in the working population who can generate the capital needed to sustain themselves, including resulting in a decline in capital accumulation by organizations due to loss of productivity and profit levels. On the other hand, capital losses refer to the reduction in the value of an organization's capital such as investments and capital assets in a country engaged in war. This is because of the war effects, which forces companies in a war country to sell their capital assets at lower values or the value of their capital assets weakens and goes down below the actual values.