Figure 7-3 -Refer to Figure 7-3. Suppose That the Economy Is in Economy

Multiple Choice

Figure 7-3
-Refer to Figure 7-3. Suppose that the economy is in long-run equilibrium at point A. Now suppose the stock market crashes, significantly reducing household wealth. What happens in the short-run?

A) Real GDP remains at Y₁ but the price level falls to P₃.
B) The quantity of real GDP demanded falls resulting in a movement from point A to point F.
C) Real GDP decreases to Y₃ and the price level falls to P₃.
D) The economy moves to a short-run equilibrium at point D.