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. In the short-run,
A) the nominal wage rate falls.
B) unemployment is above its natural level.
C) there will be pressure on prices to rise.
D) the short-run aggregate supply curve shifts to the left as firms cut production.

Question

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. In the short-run,
A) the nominal wage rate falls. 
B) unemployment is above its natural level. 
C) there will be pressure on prices to rise. 
D) the short-run aggregate supply curve shifts to the left as firms cut production.

Quizplus · Accepted Answer

A stock market crash reduces household wealth, leading to decreased consumption and aggregate demand. In the short run, this results in higher unemployment above its natural level as firms reduce output in response to lower demand.

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