Macroeconomic equilibrium

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 balance translates into the fact 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 a set of public and private consumption, investment and liquid exports (that is, exports minus imports).

Production = Private Consumption + Public Consumption (Public Expenditure) + Investment + Liquid Exports

The attainment of equilibrium situations at the level of monetary aggregates usually translates into periods of economic prosperity or growth . When there is inequality, however, 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 aggregate supply and demand of an economy and its interaction.

Types of macroeconomic equilibrium

There are two types of macroeconomic equilibrium:

  • In the short term: DA = OA: Occurs when the amount demanded of real GDP is equal to the amount offered. That is, it occurs at the intersection of the aggregate demand curve (DA) and the short-term aggregate supply curve (OAC).
  • In the long term:It happens when the aggregate supply does not reflect actual production, but another potential or long-term one. In that case, potential production and aggregate demand are the variables that determine the price level. This affects, therefore, the nominal salary rate.

Graphical representation of macroeconomic balance

As in the case of the equilibrium of a market, 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 be observed in the macroeconomic equilibrium and that condition it are the general price level and the real GDP observed. Their interaction reflects the point of balance.

Any change recorded in the variables that make up both aggregate supply and demand, other than the price level, usually has the effect of shifting 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 institutions, political or military conflicts, technological improvements, changes in future economic expectations, changes in the price of fuels or in the preference of the inhabitants for savings over consumption, among many others.

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