Macroeconomic equilibrium

Macroeconomic Equilibrium

Macroeconomic equilibrium occurs when the quantity of aggregate demand equals the quantity of aggregate supply in an economy.
It is the point where the real quantity of output demanded and supplied meet, determining the equilibrium price level and real GDP.

Achieved where the aggregate demand curve intersects with the aggregate supply curve on a graph depicting the two.
This point of intersection signifies the equilibrium price level and the real GDP of an economy.

Short-run equilibrium occurs when the quantity of aggregate demand equals the short-run aggregate supply.
Long-run equilibrium occurs when the quantity of aggregate demand equals the long-run aggregate supply, representing the economy’s full employment output.

If aggregate demand increases (shifts right), a new equilibrium will be established with a higher price level and more output.
If aggregate demand decreases (shifts left), a new equilibrium occurs with a lower price level and less output.
If short-run aggregate supply decreases (shifts left), a new equilibrium with a higher price level and less output will be established.
If short-run aggregate supply increases (shifts right), the new equilibrium will have a lower price level and more output.

Macroeconomic equilibrium helps to determine the overall price level and GDP of the economy.
It shows the state of balance in the economy and plays a key role in economic analysis and policy formulation.

It might not denote an optimal or desirable output level, but only the point of balance between aggregate demand and supply.
There may be a gap between the potential and actual GDP, known as an output gap, in the short-run equilibrium.
Changes in the economy constantly shift aggregate demand and supply, so the equilibrium is often a moving target.