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Which of the following will happen when the economy makes the transition from its short-run equilibrium to its long-run equilibrium? (Note: Do The Federal Reserve decreases the money supply by 5 percent. not adjust the graphs to reflect the transition to the long run.) Check all that apply. On the following graph, use the theory of liquidity preference to illustrate the impact of this policy on the interest rate. The price level will rise. ? The demand for money will fall. The equilibrium interest rate will fall. Money Supply is not The brium interest rate will fall. Money Demand is This analysis consistent with the proposition that the money supply has real effects in the short run but is neutral in the long run. Interest Rate Money Supply Money Demand Quantity of Money On the following graph, use the model of aggregate demand and aggregate supply to illustrate the impact of this change in the interest rate on output and the price level in the short run. LRAS Aggregate Supply Aggregate Demand O Price Level Aggregate Supply -4 LRAS Aggregate Demand Quantity of Output