The Friedman Curve is a curve that shows the relationship between the price level and the GDP, showing each respective price level and the real GDP that businessmen are willing to sell at that price level. The idea was that people, having lived with inflation over a period of years, would eventually come to expect that the inflation would continue. Even if the Dynamic Friedman Curve is stable, the relationship of RGDP to the price level will vary depending on the price level and RGDP the year starts with. And it will generally shift from year to year as the price level and RGDP shift from year to year. This is shown in Figure 3.
Producers react differently depending on whether an increase in the price level comes as a surprise.
Therefore, production is greater at higher price levels. That is, the Aggregate Supply curve is upward sloping. On the other hand, if the increase in the price level is not a surprise, the input prices will move right up with it, so that there will be no reason to increase production. In that case, the aggregate supply curve would be vertical. Contracts based on the old price level have some time to run, and while they are in force, it really is more profitable to increase production.