Redraw Figure 2, showing how a decrease in the price level will lead to an increase in equilibrium real GDP.

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(a) (b) Interest Rate Aggregate Expenditure ($ trillions) MS AE, = 6% AE, = 9% B As the price level rises, money demand increases and the interest rate rises, 9% The rise in the interest rate causes real GDP to fall 6% м 45° 500 Money ($ billions) 10 Real GDP ($ trillions) (c) Price On the AD curve, a higher price level is associated with a lower real GDP. Level 140 н 100 AD Real GDP ($ trillions) 10 LO