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Suppose that there is a hurricane that leads to the destruction of some of the nation's capital stock (hereafter shock). Use the classical IS-LM model (with no misperceptions) to answer questions below. a. Determine the general-equilibrium effects of this shock on the following curves.

Suppose that there is a hurricane that leads to the destruction of some of the nation's capital stock (hereafter shock). Use the classical IS-LM model (with no misperceptions) to answer questions below. a. Determine the general-equilibrium effects of this shock on the following curves.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Suppose that there is a hurricane that leads to the destruction of some of the nation's capital stock (hereafter shock). Use the classical IS-LM model (with no misperceptions) to answer questions below. a. Determine the general-equilibrium effects of this shock on the following curves. The LRAS curve A. does not shift B. shifts to the right C. the effect is ambiguous D. shifts to the left The FE line A. does not shift B. the effect is ambiguous C. shifts to the left D. shifts to the right The IS curve A. shifts up to the right B. shifts down and to the left C. the effect is ambiguous D. does not shift
Transcribed Image Text:Suppose that there is a hurricane that leads to the destruction of some of the nation's capital stock (hereafter shock). Use the classical IS-LM model (with no misperceptions) to answer questions below. a. Determine the general-equilibrium effects of this shock on the following curves. The LRAS curve A. does not shift B. shifts to the right C. the effect is ambiguous D. shifts to the left The FE line A. does not shift B. the effect is ambiguous C. shifts to the left D. shifts to the right The IS curve A. shifts up to the right B. shifts down and to the left C. the effect is ambiguous D. does not shift
The LM curve A. shifts up and to the left B. the effect is ambiguous C. shifts down to the right D. does not shift b. Since the main goal of the central bank is to stabilize the price level, what should be central bank's response to this shock? A. to increase nominal money supply B. to decrease nominal money supply C. it should not intervene D. it is not clear, as the effect of the shock on the price level is ambiguous c. Suppose that as a result of the shock, the future expected marginal product of capital declines. What is the combined effect of these changes on the following curves in the general equilbrium? The IS curve A. shifts to the left B. shifts to the right C. the effect is ambiguous D. does not shift
Transcribed Image Text:The LM curve A. shifts up and to the left B. the effect is ambiguous C. shifts down to the right D. does not shift b. Since the main goal of the central bank is to stabilize the price level, what should be central bank's response to this shock? A. to increase nominal money supply B. to decrease nominal money supply C. it should not intervene D. it is not clear, as the effect of the shock on the price level is ambiguous c. Suppose that as a result of the shock, the future expected marginal product of capital declines. What is the combined effect of these changes on the following curves in the general equilbrium? The IS curve A. shifts to the left B. shifts to the right C. the effect is ambiguous D. does not shift
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