Due to weakening of global economic activity, level of aggregate demand ___________ in the economy.

Option 1 -> When global economic activity weakens, reduced international demand and lower confidence would not increase aggregate demand.

Option 2 -> Weakening global economic activity leads to reduced exports, lower investment, decreased business confidence, and reduced spending, causing aggregate demand to fall.

Option 3 -> Aggregate demand cannot remain constant when external economic conditions deteriorate, as it directly affects domestic consumption, investment, and exports.

Option 4 -> There is no economic mechanism that would cause aggregate demand to first increase before decreasing when global activity weakens.

Hence, Option 2: Decreases -> When global economic activity weakens, it creates a ripple effect on the domestic economy. Export demand falls as foreign buyers reduce purchases, businesses cut investment due to uncertainty, consumer confidence drops leading to reduced consumption, and overall economic sentiment becomes negative. Since aggregate demand is the sum of consumption, investment, government spending, and net exports (C+I+G+NX), a decline in multiple components leads to an overall decrease in aggregate demand. -> correct