Consider the Real Intertemporal Model we discussed in class. Suppose that a severe blizzard hits the economy of Connecticut and destroys big plants located in Manchester. In the context of our model, this is equivalent to a decrease in the current capital stock K.

1. Show its impact on labor demand. Note that you must begin with an initial equilibrium, like in class. Do not talk about labor supply or wage rate at this point. Why does labor demand change the way it does? Draw the graph and explain.