Draw a graph of aggregate demand, short-run aggregate supply, and long-run aggregate supply. Label the curves and axes. Label the price level as PL₁ and the real GDP as Y₁.

a. Show how the graph will change if the money supply decreases. Label the new price level as PL₂ and the new real GDP as Y₂.

b. Show what happens in the long run to bring the equilibrium of aggregate demand and short-run aggregate supply back to a point on the long-run aggregate supply curve. Label the new price level as PL₃.

c. Explain why the change that you drew for part (b) occurred.