Question

When the national income in other nations decreases, what happens to aggregate demand in our economy?

1) It increases
2) It decreases
3) It remains the same
4) Cannot be determined

Answer 1

When the national income in other nations decreases, it typically leads to a decrease in aggregate demand in our economy due to a decrease in foreign demand and a relative price increase of U.S. goods.

Step-by-step explanation:

When the national income in other nations decreases, it typically leads to a decrease in aggregate demand in our economy. This is because a decrease in foreign demand and a relative price increase of U.S. goods contribute to a decrease in aggregate demand. Changes in net exports caused by recessions in other nations can also impact a nation's level of real GDP in the short run.