If a natural disaster destroys some of the capital stock,then the classical model predicts
A)labor demand,real wages,and output will fall.
B)labor demand and real wages will rise,output will fall.
C)the labor market remains unchanged but output falls.
D)None of the above

Question

Quizplus · Accepted Answer

According to the classical model, a decrease in capital stock will lead to a decrease in the marginal product of labor, causing a downward shift in the labor demand curve. This decrease in labor demand will lead to a fall in real wages and output.

If a Natural Disaster Destroys Some of the Capital Stock,then