Question 59

At lower price levels, exports increase, resulting in an increase in the real GDP

The downward slope of the aggregate demand curve is explained by the relationship between price levels and export levels. As price levels decrease, exports tend to increase, leading to a higher real GDP.

A) At lower price levels, imports increase, resulting in an increase in the real GDP

This option is incorrect because an increase in imports typically leads to a decrease in net exports, which can reduce aggregate demand. Higher imports at lower price levels do not support an increase in real GDP.

B) At lower price levels, exports increase, resulting in an increase in the real GDP

This option correctly identifies that lower price levels can make a country's goods and services more competitive internationally, thereby increasing exports. An increase in exports contributes positively to real GDP, which is a key reason for the downward slope of the aggregate demand curve.

C) At lower price levels, real wealth decreases, resulting in a decrease in the quantities of goods and services demanded

This assertion is incorrect, as lower price levels usually increase purchasing power, which can enhance real wealth. Therefore, it is unlikely that real wealth would decrease, leading to lower quantities demanded.

D) At lower price levels, interest rates decrease, resulting in a decrease in the quantities of goods and services demanded

This option is incorrect because lower price levels generally lead to lower interest rates, which tend to encourage borrowing and spending, thus increasing demand rather than decreasing it.

Conclusion

The correct answer, B, highlights the importance of exports in explaining the downward slope of the aggregate demand curve. While other options incorrectly describe the effects of price levels on GDP, option B accurately reflects the relationship between declining price levels and increased economic activity through higher exports, reinforcing the fundamental dynamics of aggregate demand.