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Describe Equilibrium in the Goods Market.

Describe Equilibrium in the Goods Market.

Answers

Kavungya
Equilibrium occurs when there is no tendency for change. In the macroeconomic goods market, equilibrium occurs when planned aggregate expenditure is equal to aggregate output.
Assuming a simple closed economy;
Aggregate Output = Y
Planned Aggregate Expenditure (AE) = C + I
Thus at equilibrium; AE = Y = C + I
If this condition does not hold then there will be dis-equilibrium. For example,
If Y > AE, Output is greater than planned aggregate expenditure and there will be unplanned increase in inventories
If Y < AE, Output is less than planned aggregate expenditure and there will be unplanned decrease in inventories.
Therefore equilibrium occurs only when planned aggregate expenditure equals output.
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Kavungya answered the question on August 10, 2021 at 07:12

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