So you may think intuitively: in th

So you may think intuitively: in this framework, when people holds more money, they
spend less (to keep more money in a current account and gaining the income from
interest rate) and so real output decreases.
As the prices decrease, the value of the money balances increases since M is constant.
Now people can buy more goods with the same amount of money, so they spend more
without loosing the interest rate income (they need to withdraw less money to buy
more goods than before), so they can spend more and real output increases until we
reach the new long-run equilibrium with the same output as in A but with lower
prices.