Economics Aggregate Demand And Supply Questions Medium
The concept of equilibrium in aggregate demand and supply refers to a state in which the total quantity of goods and services demanded in an economy is equal to the total quantity of goods and services supplied. In other words, it is the point at which the demand for goods and services matches the supply of goods and services in the economy.
At equilibrium, there is no excess demand or excess supply in the market. This means that there is no pressure for prices to rise or fall, and the economy is operating at its potential output level. The equilibrium level of output and price is determined by the intersection of the aggregate demand curve and the aggregate supply curve.
When aggregate demand exceeds aggregate supply, there is excess demand in the economy, leading to upward pressure on prices. This can result in inflationary pressures. On the other hand, when aggregate supply exceeds aggregate demand, there is excess supply in the economy, leading to downward pressure on prices. This can result in deflationary pressures.
The concept of equilibrium in aggregate demand and supply is important because it helps to understand the overall performance of the economy. It provides insights into the level of output, employment, and inflationary pressures in the economy. Policymakers often use this concept to guide their decisions on monetary and fiscal policies in order to maintain a stable and balanced economy.