Question 17 (3 points) Assume that a Cobb-Douglas production function is a good representation of the economy, the substitution effect is stronger than the income effect, the real wage is flexible, and that the economy was initially at equilibrium. Suppose that an earthquake hits the economy, destroying a large number of homes and manufacturing factories (including machines within the factories) but not causing any deaths or injuries in the population. If the real wage is completely flexible, what will happen to the equilibrium output level? The equilibrium output level will remain constant Not enough information is given to determine the answer The equilibrium output level will decrease The equilibrium output level will increase Previous Page Next Page Page 17 of 20