Macroeconomic equilibrium

From CEOpedia | Management online
(Redirected from Economic equilibrium)

Macroeconomic equilibrium is a well-known concept of balance between supply and demand[1]. According to Fabian Petri: "The most books describe this definition across one theory: that prices, both of products and of factors of production are determined by the tendency toward an equilibrium between supply and demand"[2], but introducing this definition these words has a lot of inadequacies has written Petri[3].

The determination of an equilibrium

Macroeconomic equilibrium consists of three factors. The appropriate use of them like a crucial three groups of data take effect on functioning and give a satisfying score of mechanism. The factors are [4]:

  1. well-equipped production
  2. various methods of crafting products
  3. preferences of people

Over century macroeconomic equilibrium has a few theories and forms like a [5]:

  • The Neo-classical Theory of equilibrium - involving a long period
  • The Neo-Walrasian Theory of equilibrium - involving a very - short period
  • The Monetary Theory of equilibrium
  • Theory of Keynes's equilibrium
  • The momentary equilibrium of Solow growth's model

The Neoclassical Theory of equilibrium

Traditional theory of macroeconomic equilibrium which is concentrated on a long-period equilibrium and it has a source in the tradition of famous economists like Adam Smith and David Ricardo. The core of this theory was that capital which is an individual factor of production can changing its forms without changing its measures [6].

The Neo Walrasian Theory of equilibrium

This is a new modern theory of macroeconomic equilibrium which is concentrated on a very short - period. Theory arose between the 1930s and 1960s and stepwise displace old traditional theory of long-period equilibria [7]. The Walras Equilibrium equation brings up an issue where the cost of production is parity to demand price [8].

Theory of Keynes's equilibrium

The model of IS-LM is one of the models which is the best way to understand aggregate demand. This model includes a set of equations that could signify like an IS and LM. There are the terms which describe a balance of the market of goods and monetary system. Currently, the Model of IS-LM is common use as a tool for analyzing of market[9]. The curve of IS - this curve image the situation on a market of goods, on the other hand, the curve of LM shows a situation of the monetary system [10]. Traditionally logic of The Model of IS-LM - this model is often harnessing to teaching about consequences of perturbation in the macroeconomic system [11]. According to Robert G. King: "This model may be a beginning to emerge cutting-edge models of macroeconomic" [12].


All theories mentioned above have advantages and disadvantages. Many economists tried to create a model of macroeconomy which will show us a precise relation between supply and demand. No doubt that is a complex task and it is requires a new look at the factors which are the most crucial in designation an equilibrium. For ages key of the arise the newest doctrines were considers of eminent economists. There was a basis of the next theories which was successive boosted. Nowadays we dispose of modern technics and it is certain that in the nearest future we will find a comprehensive definition of macroeconomic equilibrium.

Macroeconomic equilibriumrecommended articles
Economic feasibilityDiffusion of innovationAustrian theory of moneyDojiIS-LM modelEntropy of the systemBarriers to entryContribution analysisJohn Richard Hicks



  1. Petri F.(2004)
  2. Petri F.(2004)
  3. Petri F.(2004)
  4. Petri F.(2004)
  5. Petri F.(2004)
  6. Petri F.(2004)
  7. Petri F.(2004)
  8. Petri F.(2004)
  9. King R G.(1993)
  10. King R G.(1993)
  11. King R G.(1993)
  12. King R G.(1993)

Author: Tomasz Kuś