<Li> Movement back to the steady state is fastest when the economy is furthest from its steady state . </Li> <Li> This means that as the aggregate supply is shocked by factors of production, it will move away from its steady state . In response, the supply will slowly shift back to the steady state equilibrium, first with a large reaction, then consequently smaller reactions until it reaches steady state . The reactions back to equilibrium are largest when furthest from steady state, and become smaller as they near equilibrium . </Li> <P> For example, a shock increase in the price of oil is felt by producers as an increase in the factors of production . This shifts the supply curve upward by raising expected inflation . This slows the adjustment of the AS curve back to its steady state . As the inflation slowly falls, so will the AS curve back to its steady state . </P> <P> The modern quantity theory states that the price level is directly affected by the quantity of money . Friedman is the recognized intellectual leader of an influential group of economists, called Monetarists, who emphasize the role of money and monetary policy in affecting the behaviour of output and prices . Modern quantity theory also disagrees with the strict quantity theory in not believing that the supply curve is vertical in the short run . Thus, Friedman and other monetarists made an important distinction between the short run and long run effects of changes in money . They said that in the long run money is more or less neutral . Changes in the nominal money stock have no real effects and only change prices . But in the short run, they argue that the monetary policy and changes in the money stock can have important real effects . </P>

The model of aggregate demand and aggregate supply