Suppose that there is a natural disaster that destroys part of the nation’s capital stock. (a) determine the effects on aggregate output, consumption, employment, and the real wage, with reference to income and substitu- tion effects, and explain your results. (b) do you think that changes in the capital stock are a likely cause of business cycles? explain with reference to your answer to part (a) and the key business cycle facts described in chapter 3.

The former chairman of the federal reserve, alan greenspan, used the term "irrational exuberance" in 1996 to describe the high levels of optimism among stock market investors at the time. stock market indexes such as the s& p composite price index were at an all-time high. some commentators believed that the fed should intervene to slow the expansion of the economy. why would central banks want to clamp down when the economy is growing? a. to block the formation of unsustainable speculative asset bubbles. b. to curtail excessive profits in the banking system. c. to prevent inflationary forces from gathering momentum. d. all of the above. e. a and c only.