What occurs when the aggregate price level decreases?

The answer is that a decrease in the aggregate price level results in a movement down and to the left along the aggregate demand curve. This movement reflects the inverse relationship between the price level and the quantity of goods and services demanded. As prices decrease, consumers and businesses find it cheaper to purchase more goods and services, leading to an increase in the quantity demanded.

This concept is rooted in the downward-sloping nature of the aggregate demand curve, which allows us to visualize how changes in price levels influence overall demand in the economy. When prices fall, not only does consumer purchasing power increase, but various economic factors—like interest rates and export competitiveness—also change, further boosting demand.

While other options pertain to shifts in supply or demand, they misrepresent the relationship of price levels in context. The correct answer captures the essence of how a decrease in the aggregate price level operates within the framework of aggregate demand, emphasizing movement along the curve rather than shifts or changes in long- or short-run aggregate supply.