The Macroeconomic Equilibrium is

Expert Solution

Macroeconomic equilibrium is the point at which the aggregate supply is equal to the aggregate demand. If there are changes in either aggregate demand or aggregate supply, there will be changes in price,unemployment and inflation. If equilibrium exceeds the economy's potential it is called an inflationary gap and if it dips below the economy's potential it is called a recessionary gap.

There are assumptions of macroeconomic equilibrium resulting in different interpretation of macroeconomic problems and subsequently in different recommendations for choosing tools of macroeconomic policy. All effects of macroeconomic outcomes are transferred through aggregate supply and aggregate demand. They determines the equilibrium level of output and the price level.

Aggregate supply is the total supply of goods and services that firms in a national economy plan on selling during a specific time period. Aggregation supply curve determines the relationship between the total quantity of production supplied and the price level in the economy.

Aggregate demand is the total demand for final goods and services in an economy of a given time and price level. It includes the relationship between the quantity demanded and general price level.

Macroeconomic equilibrium does not cause a change at economic operators behaviour. It represents the equality of aggregate demand to aggregate supply. It is illustrated by AS/AD model, in which the x- axis represents the real output and the y-axis represents the aggregate price level. Macroeconomic equilibrium is an important position to deal with macroeconomic issues and to define the role of government in the economy.

Rahul Sunny answered 2 years ago

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