Currency appreciation shifts AD leftward

Steps:

• Aggregate demand consists of consumption, investment, government spending, and net exports.
• Net exports decrease when the domestic currency appreciates, making exports costlier and imports cheaper.
• This reduces total spending in the economy.
• Thus, AD shifts left from AD1 to AD2.

Why A is correct:

• Currency appreciation raises export prices relative to imports, lowering net exports (NX = X - M) and shifting AD left per the AD equation: AD = C + I + G + NX.

Why the others are wrong:

• B: Money supply increase lowers interest rates, boosting investment and consumption, shifting AD right.
• C: Price level change causes movement along AD, not a shift.
• D: Real wage rise increases production costs, shifting AS left, not AD.

Final answer: A