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Infrastructure on the east coast

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Hurricane Sandy in 2011 destroyed much capital in houses, buildings, and infrastructure on the East Coast, but resulted in little loss of life or limb. What would you expect to be the effect on actualoutput and potential output in the short run (relative to the counterfactual of no hurricane)?Explain your reasoning, and use the appropriate analysis.

[Guidance: Use the neoclassical growth model for potential output, and the IS-LM model for actualoutput. You may find it helpful to review the neoclassical theory of investment to determine theimpact of the shock on investment in the short run, focusing on the effect of depreciation from thehurricane on the difference between the optimal and the actual capital stock.]

Reference no: EM131270423

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