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. As a result,

A) the economy's potential output decreases to Y₃.
B) unemployment is below its natural rate.
C) the economy moves to a new long-run equilibrium at point C.
D) there is some cyclical unemployment.