Macroeconomic equilibrium is a concept of macroeconomics in which the market presents an equality between aggregate demand and aggregate supply. This, in the same economic system.
By definition, the existence of an economic equilibrium means that the production carried out by an economy is jointly demanded by all the economic agents existing in it (both private and public).
This concept is translatable in that the aggregate supply is represented by the production of a country through its gross domestic product (GDP). Meanwhile, aggregate demand has the set of public and private consumption, investment and liquid exports (that is, exports minus imports).
Production = Consumption + Public expenditure + Investment + Exports - Imports
The achievement of equilibrium situations at the level of the macroeconomic components usually translates into periods of economic prosperity or growth. When inequality exists, on the other hand, different consequences arise in economic life, especially deficits.
The macroeconomic equilibrium is studied and represented graphically by means of the OA-DA model. This analyzes the behavior of supply and aggregate demand of an economy and their interaction.Market equilibrium
Types of macroeconomic equilibrium
There are two types of macroeconomic equilibrium:
- In the short term: DA = OA: Occurs when the quantity demanded of real GDP is equal to the quantity supplied of it. That is, it occurs at the intersection of the aggregate demand curve (AD) and the short-term aggregate supply curve (OAC).
- Long-term: It happens when the aggregate supply does not reflect real production, but rather a potential or long-term one. In that case, potential production and aggregate demand are the variables that determine the price level. This therefore has an impact on the nominal wage rate.
Graphic representation of macroeconomic equilibrium
As in the case of market equilibrium, it is possible to represent supply and demand to study their common behavior and interaction, taking into account prices and quantities of both.
The variables to observe in the macroeconomic equilibrium and that condition it are the general price level and the observed real GDP. Their interaction reflects the point of equilibrium.
Any change registered in the variables that make up both aggregate supply and demand, other than the price level, usually has the effect of shifts in the functions and the emergence of new equilibrium points.
These changes can be periods of drought in agricultural production, variation in the amount of money in the economy, public spending decisions by the institutions, political or military conflicts, technological improvements, changes in future economic expectations, alterations in the price of fuels or in the preference of the inhabitants for saving over consumption, among many others.
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