Final answer:
The foreign-trade effect contributes to the downward slope of the aggregate demand curve, indicating that a rise in price levels leads to a decrease in aggregate demand.
Step-by-step explanation:
The foreign-trade effect causes the aggregate demand curve for an economy to slope downward. This effect is one of the reasons why, as the price level for final outputs increases, aggregate demand diminishes. Specifically, a rise in the domestic price level makes domestic goods relatively more expensive, reducing exports and thus decreasing the quantity of aggregate demand. Despite the controversies among economists about the size of this effect, it contributes to the downward slope of the aggregate demand curve, indicating that price level changes do not lead to very large changes in aggregate demand.