The Classical Model of the Price LevelStarting at E1, an increase in the money supply shifts the aggregate demand curve rightward, as shown by the movement from AD1 to AD2. There is a new short-run macroeconomic equilibrium at E2 and a higher price level at P2. In the long run, nominal wages adjust upward and push the SRAS curve leftward to SRAS2. The total percent increase in the price level from P1 to P3 is equal to the percent increase in the money supply. In the classical model of the price level, we ignore the transition period and think of the price level as rising to P3 immediately. This is a good approximation under conditions of high inflation.