The Economy in the Diagram Below Begins in Long-Run Equilibrium

The economy in the diagram below begins in long-run equilibrium at E₀. FIGURE 30-2 Refer to Figure 30-2.Suppose the economy is in a short-run equilibrium at E₁ after a negative supply shock.How will cyclical unemployment be reduced in the absence of any government policy intervention?

A) Cyclical unemployment will be reduced when the labour market becomes more flexible and can adjust to the changes in the supply of and demand for labour.
B) The excess supply of labour at E₁ will eventually put downward pressure on wages,and AS will shift back to AS₀ and full employment at E₀.
C) Cyclical unemployment will only be reduced when AD grows such that AD shifts up to AD₁ and full employment at E₂.
D) A new NAIRU will be established at E₁ and cyclical unemployment will drop to zero.
E) The excess supply of labour at E₁ will eventually cause an increase in government purchases and AD will shift up to AD₁ and full employment at E₂.