Interest Rate Effect

When the price level changes from 110 to 112, a 1.79% change, the AD/AS model predicts consumption of real GDP will fall from point 1 to point 2 as shown on the bottom graph.  This in interpreted to mean that AD has a downward sloping curve. 

It is possible to see how the interest rate effect is exogenously affecting the demand for real GDP by looking at the the money market shown in the upper quadrant of the diagram. 

When the price level rises, consumers demand more money to make purchases.  Their demand shifts from point 1 to point 2 and the interest rate rises to allocate a fixed amount of money supply. 

So the price level rises and people buy less.  I believe that the higher interest rate induced savings which I denote as an S in the lower diagram.  A change in the price level upward, also increases the nominal interest rate that induces savings.  Of course, if the price level were to fall, interest rates would fall.