2. The theory of liquidity preference and the downward-slopingaggregate demand curve The foliowing graph shoes the money market in a hypothetical economy. The central bank in this economy is calied the Fed. Assame that the Fed foxes the quantity of enoney supplied. Suppose the price level lncreases from 90 to 105 . Shint the appropriate curve on the graph to shew the impact of an increase in the ovgrall price level on the market for money. After the increase in the price level, the quantity of money demanded at the initial interest rate of 9% will bethan the quantity of money supplied by the Fed at this interest rate. People will try to their money holdings. In order to do so, people will bonds and other interest-bearing assets, and bond issuers will find that they interest rates until the money market reaches its new equilibrium at an interest rate of The following groph shows the economy's aggregate demand curve. Show the impact of the increase in the price level by moving the point along the curve or shifting the curve. Show the impact of the increase in the price level by moving the point along the curve or shifting the curve. The change in the interest rate that you found previously will cause residential and business investment spending to in the quantity of output demanded in the economy