Figure11-9Income–Expenditure Equilibrium Income–expenditure equilibrium occurs at E, the point where the planned aggregate expenditure line, AE_Planned, crosses the 45-degree line. At E, the economy produces real GDP of $2000 billion per year, the only point at which real GDP equals planned aggregate expenditure, AE_Planned, and unplanned inventory investment, I_Unplanned, is zero. This is the level of income–expenditure equilibrium GDP, Y*. At any level of real GDP less than Y*, AE_Planned exceeds real GDP. As a result, unplanned inventory investment, I_Unplanned, is negative and firms respond by increasing production. At any level of real GDP greater than Y*, real GDP exceeds AE_Planned. Unplanned inventory investment, I_Unplanned, is positive and firms respond by reducing production.