2) Suppose a country begins in full equilibrium in the AS-AD model at point A: LEAS SRAJ * 1 The country has a large agricultural sector this could be a developing country where agriculture still has substantial weight in GDP. The country relies on a large dam for much of the water supply it uses for irrigation. A serious accident damages the dam. The water flow will be substantially curtailed for years. a) Use your diagram to illustrate the effect of the accident on the economy in the long run. Make any assumptions you think are necessary. b) You are a central banker in this country. What are your concerns? Do you worry about YR? About P? If you were to adopt policies to address these concerns, is there a tradeoff in terms of dealing with these two? Illustrate with your figure.

2) Suppose a country begins in full equilibrium in the AS-AD model at point A: LEAS SRAJ * 1 The country has a large agricultural sector this could be a developing country where agriculture still has substantial weight in GDP. The country relies on a large dam for much of the water supply it uses for irrigation. A serious accident damages the dam. The water flow will be substantially curtailed for years. a) Use your diagram to illustrate the effect of the accident on the economy in the long run. Make any assumptions you think are necessary. b) You are a central banker in this country. What are your concerns? Do you worry about YR? About P? If you were to adopt policies to address these concerns, is there a tradeoff in terms of dealing with these two? Illustrate with your figure.

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter9: Classical Macro Economics And The Self Regulating Economy

Section: Chapter Questions

Problem 3WNG

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