Question

Natural disasters: Suppose a large earthquake destroys many houses and buildings on the West Coast but fortunately results in little loss of life. Show how to think about this event using the IS curve. Explain how actual output, potential output, and short-run output are affected in the short run, and why.

Answer 1

The explanation of this question is given below.

Step-by-step explanation:

There seems to be no loss of human life such that figures aren't that for customers including employees. Yet homes, schools, as well as other infrastructure are already demolished, so that capital is scarce. This tends to cause demand to decline or the aggregate demand changes left throughout the market especially.

• Such a lowers real GDP, the level of throughput, as well as increases unemployment. Therefore the IS curve will shift as income decreases.
• Throughout the shorter term, both real and expected production has declined, as the world economy assets are declining. Mostly in the short term, these have led to lower equilibrium whereby deflation happens.