Read the following report carefully and answer the questions on the basis of the same:
Along with the weakening of global economic activity, inflation the world over also remained muted in 2019. Inflation softened in advanced and emerging economies reflecting a slack in consumer demand. From the supply side, lower energy prices in 2019 also contributed to softening of inflation. In India, inflation rose slightly to 4.1% in April - December 2019, after a sharp decline from 5.9% in 2014 to 3.4% in 2018.
Due to weakening of global economic activity, level of aggregate demand ______ in the economy.
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Decreases
The report states that global economic activity weakened and that inflation remained muted due to a slack in consumer demand. A slack in demand indicates that aggregate demand has fallen.
When global economic activity weakens:
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Consumer spending declines
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Investment slows down
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Trade contracts
All these factors lead to a fall in aggregate demand. Therefore, the level of aggregate demand decreases in the economy.