The aggregate supply curve shifts from S to S₁ as depicted in the diagram above. The new equilibrium point moves to the right as well, but it is lower than the original.

This means that while the price level has decreased (from P to P₁), the amount of output has grown (Q to Q₁). Because the new equilibrium point is closer to the potential GDP line (shown by the long run aggregate supply LRAS vertical line), unemployment has dropped as well.