What is aggregate demand's role during an economic downturn?

During an economic downturn, aggregate demand typically decreases, which is a reflection of lower consumer confidence. When consumers and businesses are uncertain about the future, they tend to reduce their spending and investment. This decline in confidence leads to less consumption and lower investment spending, which are two major components of aggregate demand.

Moreover, during downturns, consumers may prioritize saving over spending, fearing job losses or reduced income. As a result, the overall demand for goods and services in the economy contracts. This reduction also affects businesses, leading them to cut back on production, resulting in a downward spiral of economic activity.

In contrast to the other choices, which either suggest stability or an increase in demand despite adverse conditions, the reality during a downturn is characterized by widespread pessimism and decreased spending across the economy, solidifying the notion that aggregate demand decreases in such times.