Assignment Task: Suppose a natural disaster destroys a significant fraction of capital. Assume no other effects and analyze the equilibrium effects in the following markets. In each question, use a diagram to support your answer.
a. Use the labor market diagram (real wage rate vs. employment) to show the effect on the equilibrium level of employment and real wage rate.
b. Use the capital market diagram (MPK and user cost vs. capital) to show the effect on the equilibrium level of capital and user cost.
c. Use the goods market equilibrium diagram (real interest rate vs. saving and investment) to show the effect on the equilibrium saving, investment and interest rate.
d. Use IS-LM-FE diagram to show the effect on the equilibrium levels of output and interest rate.
e. Use AD-AS diagram to show the effect on the equilibrium levels of output and interest rate.