2 An increase in government purchases At Yi, E=Y E=C+I+G, there is now an unplanned drop E=C+I+G in inventory. △G .so firms increase output, and income rises toward a new equilibrium E=Y △Y E2=Y3 CHAPTER 10 Aggregate Demand I slide 10CHAPTER 10 Aggregate Demand I slide 10 An increase in government purchases Y E E =C +I +G1 E1 = Y1 E =C +I +G2 E2 = Y2 Y At Y1 , there is now an unplanned drop in inventory. .so firms increase output, and income rises toward a new equilibrium G 2