Macroeconomic Equilibrium :: Economics

macro sparing EquilibriumIntroductionmacroeconomic equalizer for an thrift in the piffling vagabond isestablished when heap up penury intersects with short- post immix emerge. At the cost take Pe, the core demand for goods and services isequal to the conglomeration preparation of takings. The output and the public toll level in the economy allow tend to place towards this rebrinyder position.If the price level is as well high, thither will be an excess supply ofoutput. If the price level is down the stairs equilibrium, there will be excessdemand in the short run. In twain situations there should be a surgical operationtaking the economy towards the equilibrium level of output.Consider for physical exertion a situation where aggregate supply is greaterthan current demand. This will play to a build up in stocks(inventories) and this sends a signal to producers either to cutprices (to stimulate an compound magnitude in demand) or to let down output so asto reduc e the build up of excess stocks. either way - there is atendency for output to move adjacent to the current level of demand. in that respect may be occasions when in the short run, the economy cannot butt onan increase in demand. This is more liable(predicate) to occur when an economyreaches full-employment of agent resources. In this situation, theaggregate supply contract in the short run becomes increasinglyinelastic.The diagram below tracks the military group of this. We see aggregate demandrising but the economy finds it tough to raise (expand)production. There is a small increase in hearty topic output, but themain effect is to put upward bosom on the cosmopolitan price level.Shortages of resources will lead to a general acclivity in cost and prices.Impact of a change in aggregate supply conceive of that increased efficiency and productivity together with lowerinput cost (e.g. of essential raw materials) causes the short runaggregate supply write out to vary o utward. (I.e. an increase in supply- assume no shift in aggregate demand).The diagram below shows what is likely to happen. AS shifts outwardsand a new macroeconomic equilibrium will be established. The pricelevel has fallen and real national output (in equilibrium) hasincreased to Y2. meld supply would shift inwards if there is a rise in the unitcost of production in the economy. For example there talent be a risein unit wage costs perhaps caused by high bribe not compensated forby higher labour productivity.External economic shocksmight also cause the aggregate supply curve toshift inwards. For example a sharp rise in global commodity prices. IfAS shifts to the left, assuming no change in the aggregate demandcurve, we wait to see a higher price level (this is known asMacroeconomic Equilibrium EconomicsMacroeconomic EquilibriumIntroductionMacroeconomic equilibrium for an economy in the short run isestablished when aggregate demand intersects with short-run aggregatesupply. A t the price level Pe, the aggregate demand for goods and services isequal to the aggregate supply of output. The output and the generalprice level in the economy will tend to adjust towards thisequilibrium position.If the price level is too high, there will be an excess supply ofoutput. If the price level is below equilibrium, there will be excessdemand in the short run. In both situations there should be a processtaking the economy towards the equilibrium level of output.Consider for example a situation where aggregate supply is greaterthan current demand. This will lead to a build up in stocks(inventories) and this sends a signal to producers either to cutprices (to stimulate an increase in demand) or to reduce output so asto reduce the build up of excess stocks. Either way - there is atendency for output to move closer to the current level of demand.There may be occasions when in the short run, the economy cannot meetan increase in demand. This is more likely to occur when an eco nomyreaches full-employment of factor resources. In this situation, theaggregate supply curve in the short run becomes increasinglyinelastic.The diagram below tracks the effect of this. We see aggregate demandrising but the economy finds it difficult to raise (expand)production. There is a small increase in real national output, but themain effect is to put upward pressure on the general price level.Shortages of resources will lead to a general rise in costs and prices.Impact of a change in aggregate supplySuppose that increased efficiency and productivity together with lowerinput costs (e.g. of essential raw materials) causes the short runaggregate supply curve to shift outwards. (I.e. an increase in supply- assume no shift in aggregate demand).The diagram below shows what is likely to happen. AS shifts outwardsand a new macroeconomic equilibrium will be established. The pricelevel has fallen and real national output (in equilibrium) hasincreased to Y2.Aggregate supply would shift inwards if there is a rise in the unitcosts of production in the economy. For example there might be a risein unit wage costs perhaps caused by higher wages not compensated forby higher labour productivity.External economic shocksmight also cause the aggregate supply curve toshift inwards. For example a sharp rise in global commodity prices. IfAS shifts to the left, assuming no change in the aggregate demandcurve, we expect to see a higher price level (this is known as