What economic situation arises when both aggregate demand and real GDP decrease?

When both aggregate demand and real GDP decrease, the likely outcome is a decrease in price levels. This occurs because a fall in aggregate demand indicates that consumers and businesses are spending less, which reduces the overall demand for goods and services in the economy. When demand contracts, businesses may find that they have excess inventory and may lower their prices to stimulate sales.

Additionally, as real GDP decreases, it typically signals a slowdown in economic activity, which further contributes to downward pressure on prices. This scenario is often associated with a recession or economic downturn, where demand falls back, resulting in lower price levels as a response to reduced consumption and investment.

The other options do not correctly represent the economic outcomes of simultaneous decreases in aggregate demand and real GDP. Price levels increasing would contradict the reduced demand scenario, while increased short-run aggregate supply is not consistent with declining demand and real output. An unchanged aggregate demand would not explain the observed decrease in demand and output, leading to significant shifts in economic conditions.