Suppose the following conditions are present in the economy: - firms are facing lower-than normal sales and have reduced output
-there is an excess supply of labour and firms are starting to reduce their workforces
Which of the following statements describes the adjustment that will happen in the AD/AS macro model?
A)Output is below potential; aggregate demand will fall,causing the AD curve to shift to the left.The price level will fall until equilibrium is restored at

.
B)The economy is in equilibrium at

,but wages are falling.The AS curve will shift to the right until a new equilibrium is reached at a lower price level.
C)Output is below potential; wages will eventually fall; the AS curve will slowly shift to the right until equilibrium is restored at

.
D)Output is above potential; wages will fall,causing the AS curve to shift to the right until equilibrium is restored at

.
E)Output is above potential; aggregate demand will fall,causing the AD curve to shift to the left until equilibrium is restored at

How Do We Define the Economy's Output Gap

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