Suppose a natural disaster wipes out a significant portion of the economys capital stock, reducing the potential

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Suppose a natural disaster wipes out a significant portion of the economy’s capital stock, reducing the potential level of output. What would you expect to happen to the long-run real interest rate? What impact would this have on the monetary policy reaction curve and the dynamic aggregate demand curve?

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Money Banking and Financial Markets

ISBN: 978-0078021749

4th edition

Authors: Stephen Cecchetti, Kermit Schoenholtz

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