Unlike the Suez Canal, the Panama Canal is highly relevant for the US economy. A blockage of the Panama Canal could produce severe supply disruptions for the US economy. Suppose there is a severe blockage of the Panama Canal that last for six weeks. The following questions consider how such a blockage of the Panama Canal would affect the US economy in the short-run. Once Panama Canal officials are able to unblock the canal and get traffic flowing again, the US economy will begin to recover from the supply disruptions. Which of the following statements describes the US economy after the Panama Canal has become unblocked?        A) The price level will increase back to its initial level of P*, and real GDP will decrease back to its natural level.       B) The price level will decrease back to its initial level of P*, and real GDP will increase to its natural level.       C) The price level will increase to its original level of P*, and real GDP will increase to its natural level.       D) The price level will decrease to its original level of P*, and real GDP will decrease to its natural level.

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Factor Models

Many attributes might be related to an asset's risk, including market capitalization (size), dividend yield, growth, price-earnings ratio, etc. The use of these traditional descriptors, however, presents a few problems: