Answer a-d all questions as fast as possible 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 nomisperceptions) to answer questions below.a. Determine the general-equilibrium effects of this shock on the following curves.The LRAS curveA. does not shiftB. shifts to the rightC. the effect is ambiguousD. shifts to the leftThe FE lineA. does not shiftB. the effect is ambiguousC. shifts to the leftD. shifts to the rightThe IS curveA. shifts up to the rightB. shifts down and to the leftC. the effect is ambiguousD. does not shift The LM curveA. shifts up and to the leftB. the effect is ambiguousC. shifts down to the rightD. does not shiftb. 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 supplyB. to decrease nominal money supplyC. it should not interveneD. it is not clear, as the effect of the shock on the price level is ambiguousc. 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 curvesin the general equilbrium?The IS curveA. shifts to the leftB. shifts to the rightC. the effect is ambiguousD. does not shift

A Supply Shock is defined as an event which is unexpected and changes the supply of a good, which…

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.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter17: Capital And Time

Section: Chapter Questions

Problem 17.9P: Precautionary saving and prudence The Query to Example 17.2 asks how uncertainty about the future...

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Question

Answer a-d all questions as fast as possible

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

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