SupposeadestructivewaveofwildfiressweepsthroughthecountryofTinderbox,whichforthe simplicity of our economic modeling is assumed to be a closed economy. Unfortunately, the fire causes thedeathofmanyofthecountry'swildanimals,butfortunatelynohumansdieandnobuildingsor equipmentisdamagedbythefires.Thewidespreaddestructioncausesbothautonomous consumption and autonomous investment decline.Please refer (label) the initial long-run equilibrium as point A, the new short-run equilibrium as point B, and the new long-run equilibrium as point C.

a)SupposepriortothefiresTinderboxwasinlong-runequilibrium.UseoneIS/LMdiagramto show the short-run equilibrium impact of the fire induced shocks on the economy. Don't forget tolabelthenewSRequilibriumaspointB.Inwordsdescribetheshort-runimpacttoreal output, the real interest rate, unemployment, the aggregate price level and the real money supply.

b)InyourdiagramfrompartAshowthelong-runimpactofthesefireinducedshocksonthe economyofTinderbox.Don'tforgettolabelthenewLRequilibriumaspointC.Inwords describe the long-run impact to real output, the real interest rate, unemployment, the aggregate price level and the real money supply.

c)In a new IS/LM model diagram show (again) the short-run impacts of the fire induced shocks. NowsupposecentralbankdoesnotliketheSRimpactoftheshocksandhavedecidedtouse monetary policy in order to push the level of cyclical unemployment to zero. In words describe the short-run impact to real output, the real interest rate, unemployment, the aggregate price level and the real money supply. In your diagram show the long-run impact of these fire induced shocks & the monetary policy response on the economy of Tinderbox. Don't forget to label the new LR equilibrium as point C. In words describe the long-run impact to real output, the real interest rate, unemployment, the aggregate price level and the real money supply.