Use the following to answer questions . Exhibit: Short-run Aggregate Supply -(Exhibit: Short-run Aggregate Supply) 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.

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A stock market crash reduces household wealth, leading to decreased consumption and aggregate demand, causing cyclical unemployment as the economy moves below its potential output.

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