Final answer:
A decrease in the money supply leads to a leftward shift in the aggregate demand curve, resulting in a lower real GDP and a potential decrease in the price level.
Step-by-step explanation:
When considering the effect of a decrease in the money supply on the aggregate demand (AD) curve, which is plotted with real GDP on the horizontal axis and the price level on the vertical axis, the curve will shift leftward.
This is because a reduction in the money supply typically leads to higher interest rates, which in turn decreases investment spending (I) and consumption spending (C), both critical components of aggregate demand.
Consequently, the decrease in these factors results in a lower quantity of total spending, which is represented by a leftward shift of the AD curve. This leftward shift corresponds to a decrease in real GDP and a tendency for the price level to fall.