Which of the following will shift the aggregate supply (AS) curve for the domestic economy to the left?

Multiple choice question.

No change in the U.S. dollar exchange rate.

A depreciation of the U.S. dollar

An appreciation of the U.S. dollar

A depreciation of a foreign currency relative to the U.S. dollar.

1 answer

The correct option that would shift the aggregate supply (AS) curve for the domestic economy to the left is:

An appreciation of the U.S. dollar.

An appreciation of the U.S. dollar makes U.S. goods more expensive for foreign buyers, which can lead to a decrease in demand for U.S. exports. Additionally, it can increase the cost of production for exporters if they need to purchase materials priced in foreign currencies, thus negatively impacting aggregate supply.

In contrast, a depreciation of the U.S. dollar would generally shift the AS curve to the right by making exports cheaper and imports more expensive, improving the competitiveness of U.S. goods. A foreign currency depreciation relative to the U.S. dollar would also not shift the AS curve to the left as it would usually enhance export demand. No change in the U.S. dollar exchange rate would not shift the AS curve at all.