Answer: Option (a) is correct.
Step-by-step explanation:
Correct option: A decrease in demand will cause output to fall but no change in prices.
When aggregate supply curve is horizontal in the AD-AS diagram then that aggregate supply curve is perfectly elastic. It means that if there is any changes in the aggregate demand, as a result quantity of output changes but price remains the same.
Hence, if there is a decrease in the aggregate demand, as a result there is a leftward shift in the aggregate demand curve which reduces the output level and price remains constant.