The nation experiences a major hurricane that destroys significant capital stock. Policymakers in the federal government reason that the destruction caused by the hurricane will reduce national income and that this should be counteracted through an increase in government expenditures.
1. Is the action suggested by these policy makers necessary, given what their goals appear to be?
2. What would the net effects on the economy be if the government expenditures were temporarily increased after the hurricane?
3. Are there any circumstances when this course of action would make sense? Explain.