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 long-run, all other things unchanged?

A) The aggregate demand curve will shift back to AD₁.
B) The economy will be stuck at an output level below its potential level.
C) The economy returns to full-employment equilibrium at point A.
D) The economy returns to full-employment equilibrium at point D.