When national income in other nations decreases, aggregate demand in our economy:

• A. increases, because domestic consumers substitute foreign goods with domestic goods
• B. decreases, because foreign consumers buy fewer of our exports
• C. remains unchanged, because national income abroad does not affect our economy
• D. increases, because imports from other nations become cheaper

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of aggregate demand (AD), which is the total demand for goods and services within a country, including consumption, investment, government spending, and net exports (exports minus imports).
2. Step 2: Recognize that when national income in other nations decreases, their consumers have less income to spend on goods and services, including imports from our country.
3. Step 3: Analyze the impact on our economy's exports: with lower income abroad, foreign consumers will likely buy fewer of our exports, reducing the net exports component of our aggregate demand.
4. Step 4: Conclude that a decrease in exports leads to a decrease in aggregate demand in our economy, since net exports are a component of aggregate demand.
5. Step 5: Therefore, the correct reasoning is that aggregate demand decreases because foreign consumers buy fewer of our exports when their national income falls.