Answer :
Final answer:
Macroeconomic equilibrium is when aggregate demand equals aggregate supply, resulting in balanced economic output. It can be graphically represented where the AD and AS curves intersect, indicating the price level and GDP. Factors influencing this equilibrium can cause shifts, affecting the business cycle.
Explanation:
What is Macroeconomic Equilibrium?
Macroeconomic equilibrium occurs when the total economy's output (Gross Domestic Product) is equal to the total aggregate demand. This means that what is produced in the economy is being purchased by consumers, businesses, and the government. At this point, there is neither a surplus nor a shortage of goods and services, and the forces of supply and demand are balanced.
Graphing Macroeconomic Equilibrium
Macroeconomic equilibrium can be represented graphically with the aggregate supply (AS) and aggregate demand (AD) curves. The vertical axis represents the price level, while the horizontal axis represents real GDP. The point where the AD curve intersects the AS curve indicates the equilibrium price level and GDP.
- Aggregate Demand (AD): This curve slopes downward, showing that as the price level decreases, the quantity of goods and services demanded increases.
- Aggregate Supply (AS): This curve typically slopes upward, indicating that as the price level rises, producers are willing to supply more goods and services.
In a stable economy, this equilibrium can shift due to various factors such as changes in consumer preferences, technology advancements, or government policies, leading to fluctuations in the Business Cycle.
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