Depreciation boosts net exports, shifting AD right

Steps:

• Aggregate demand (AD) = C + I + G + (X - M); rightward shift requires increase in any component.
• Evaluate each option's impact on AD components.
• Depreciation (fall in exchange rate) raises X and lowers M, increasing NX.
• Other options either reduce components or have unclear/negative effects.

Why C is correct:

• A fall in the exchange rate depreciates the currency, making exports cheaper and imports costlier, increasing net exports (NX) per the AD formula and shifting the curve right.

Why the others are wrong:

• A: A fall in income equality (rising inequality) reduces consumption (C) by concentrating income among low-spending groups.
• B: A fall in incomes abroad decreases foreign demand for exports (X), lowering NX.
• D: A fall in the government budget deficit reduces government spending (G) or raises taxes, decreasing AD.

Final answer: C