The demand for goods and services is negatively related to the real interest rate, just as with the IS curve: a higher interest rate reduces investment (and the interest-sensitive portion of consumption, if you’re modeling consumption and saving as functions of the interest rate), and therefore reduces income.
This equation also shows that the demand for goods and services is higher when the natural rate of output is higher.
The following slide explains the parameters (alpha and rho) and the demand shock.