Assume an economy is in equilibrium at an output level of $1,600 billion. If government purchases increase by $200 billion, then at the output level of $1,600 billion, there is

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An increase in government purchases of $200 billion would shift the aggregate demand curve to the right. At the initial output level of $1,600 billion, there would be an excess demand for goods and services, leading to an unplanned decrease in inventories. This implies that firms did not expect this level of demand and had not produced enough to meet it, resulting in a decrease in inventories.

Assume an Economy Is in Equilibrium at an Output Level