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Hurricane Katrina And Its Effects On The Economy.

1389 words - 6 pages

Hurricane Katrina was a storm that brought America to its knees. What made hurricane Katrina so devastating, was that it not only destroyed parts of America's infrastructure, it impacted America's economy as well. In just a few hours, a single storm altered America's GDP, employment rate, and even the spending power of consumers all over the country. Even today, America's economy is still affected by the damage from the storm.Many consider Hurricane Katrina to have been the most destructive natural disaster in U.S. history. The overall destruction wrought by Hurricane Katrina, which was both a large and powerful hurricane as well as a catastrophic flood, vastly exceeded that of any other major disaster, such as the Chicago Fire of 1871, the San Francisco Earthquake and Fire of 1906, and Hurricane Andrew in 1992. This devastating storm left almost 80% of New Orleans flooded. It completely destroyed an estimated 300,000 homes, and over 100,000 businesses. When the winds and floods of Hurricane Katrina subsided, an estimated 1,330 people were dead as a result of the storm (1).In the days that followed hurricane Katrina, America and its economy had been changed dramatically. One of the most evident changes that occurred as a result of the storm was the nation's unemployment rate. A month prior to the storm, the national unemployment rate was at 4.9%. However, shortly after hurricane Katrina swept through America, the national unemployment rate increased to 5.1%. It was estimated that nearly 400,000 individuals lost their jobs as a result of the storm (2).Not only did this sudden increase in the unemployment rate cause for hundreds of thousands to loose their jobs, it also caused a decrease in the quantity of goods and services produced by our country. In New Orleans, three major oil pipes had to be shut down in order to safely repair the damage. As a result, 6,160,000 gallons of oil were lost just within the first week of repairs. In addition, many US refining sectors along the Gulf Coast had to be closed. As a result, our nation's daily refining capacity was reduced by 1.8 million barrels a day, or 11% (6).The sudden changes in the unemployment rate and the production rate had a major impact on the price of goods and services. Just after hurricane Katrina, the price of goods and services increased significantly. The price of goods such as gasoline and agricultural products sharply increased. In the month that followed, the cost of gasoline jumped 46 cents a gallon, putting the average price of gas at $3.06 per gallon (3). The cause behind this sudden increase in prices was triggered by a shift in America's long-run aggregate supply curve. When the unemployment rate increased, the economy began producing a smaller quantity of goods and services. As a result, the long-run aggregate-supply curve shifted to the left. Similarly, this shift would cause for the short-run aggregate-supply curve to shift to the left as well. When you graph out the shifts in...

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