and has a value of $ billion. Explanation a. See solution graph above b. The equilibrium levels ot110 and $220 billion are found at the intersection of aggregate demand and aggregate supplyr curves. At a price level of 130, the economy's real output of $260 billion exceeds real expenditures of $180 billion. This means that more is produced than is purchased in the economy. causing an unintended increase in inventories. The result is a reduction in prices until real output and real expenditures are equal at a price level of 110. If the price level is 100, the economy's real expenditures of $240 billion exceed the real output of $100 billion. Because more is purchased than is produced in the economy, there is an unintended decrease in inventories. This leads to an increase in prices until real output and real expenditures are again equal at a price level of 110. c. Because aggregate demand expands by $50| billion at every price level this is an increase in aggregate demand. The equilibrium price level rises to 120 and the equilibrium real output to $250 billion. d. Because real output expands by $50 billion at each price level the economy's potential output has also increased by the same amount which means this is a longrun increase in aggregate supply. The equilibrium price level falls to 100 and the equilibrium real outout rises to $240 billion