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Suppose that a decline in housing prices and a decline in stock market valuations lowers wealth...

Suppose that a decline in housing prices and a decline in stock market valuations lowers wealth and leads people to spend less. This is an example of

a change in the economy's productive capacity that changes the long-run growth trend

a demand shock that changes the long-run growth trend

a demand shock that generates a short-run fluctuation, taking the economy away from its long-run growth trend

a demand shock that affects neither short-run fluctuations nor the long-run growth trend
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Answer #1

a demand shock that generates a short-run fluctuation, taking the economy away from its long-run growth trend.

Long run output level remains the same. Only short run output is affected.

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