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Topic 22. Macroeconomic balance

The achievement of macroeconomic goals, the stability of the economy is possible only in conditions of its balance, equilibrium. The ratio between the individual parts of the economy should lead to a general economic equilibrium - a state in which the volume of production and the proportions of exchange have developed in such a way that equality between supply and demand is simultaneously achieved in all markets and none of the participants in market transactions is interested in changing their purchases or sales. . The problem of achieving equality of supply and demand on the scale of the entire economy turns into the problem of equality of the created and used GNP (national income).
The general economic equilibrium is not a typical state of a market economy, since the plans of economic entities developed independently from each other can coincide only by chance. Therefore, the main question that arises in connection with macroeconomic equilibrium can be formulated as follows: is the market economy able to maintain equilibrium on its own, or does this require government intervention? In this chapter, possible answers to this question will be considered.
The main questions of the topic:

Question 1. Conditions of macroeconomic equilibrium.
Question 2. Changes in macroeconomic equilibrium.

Different economists have different understandings of the conditions under which macroeconomic equilibrium is achieved.
The classical school proceeds from the fact that supply (production) creates demand and thus ensures the equilibrium of aggregate demand and aggregate supply. The classics consider equilibrium conditions at changing prices.
The Keynesian school proceeds from the fact that demand forms supply and is the main factor that ensures macroeconomic equilibrium. At the same time, Keynesians analyze the equilibrium conditions at constant prices.
Classical theory of macroeconomic equilibrium. The initial premise of the interpretation of the conditions of macroequilibrium by the supporters of the classical direction is the position that the market is a self-regulating system that constantly functions with the full use of available resources, that the actual GNP is always equal to the potential one, unemployment is at a natural level and the general economic equilibrium is achieved automatically. By purchasing and consuming factors of production, firms generate income, which turns into demand for goods produced by firms. Thus, firms themselves create the conditions for the sale of their goods, and the level of income is always sufficient to buy the products created by production.
However, there is one flaw in the provision about the equality of demand to income received. The fact is that not all income received is presented in the form of demand, part of the income is saved, and demand turns out to be less than income, therefore, not all of the produced GNP can be realized. The accumulation of unsold inventories leads to a reduction in production, an increase in unemployment and a subsequent drop in income. Thus, savings act as a factor that upsets the equilibrium.
This classical dilemma is resolved in the following way. Savings do not lead to insufficient demand and disruption of macroeconomic equilibrium, since what is saved by the population is invested by firms. The amount of money accumulated by households (savings) is always equal to the amount of money demanded by the business. By investing, firms make "injections", replenish the "leakage" of income caused by savings, thereby ensuring a balance between aggregate demand and aggregate supply. Hence, the equality of savings to investments is a condition of macroeconomic equilibrium. And this equality, according to classical economists, is constantly supported by the flexibility of interest rates.
Representatives of the classical school believe that savings depend on the level of the interest rate. The higher the interest rate, the higher the incentive to save. At the same time, as shown above, the demand for investment is also determined by the level of the interest rate. Thus, both savings and investments are functions of the lending rate:
S = f(i) and 1 = f(i),
where I - investments;
i - interest rate;
S - savings.
Saving is the supply of money, investment is the demand for money. Hence, the equilibrium of the money market is a condition for the equality of savings to investments. In turn, the equilibrium of the money market is ensured by the flexibility of interest rates. If savings (money supply) exceed investment demand, then the interest rate will fall, investment will increase, and the market will be in equilibrium. If, on the contrary, investment demand (demand for money) is greater than savings and exceeds supply, then the interest rate will rise, and savings will begin to increase.
If, nevertheless, there is a violation of the macroeconomic equilibrium, then its rapid recovery will be ensured by the flexibility of prices and wages. At the same time, the logic of reasoning of the supporters of the classical direction is as follows. If there is a recession in the economy and unemployment appears, this will lead to a fall in wages (employed workers will agree to work for lower wages), production costs will decrease, which will lead, on the one hand, to a decrease in commodity prices, therefore, the real wages of the employed workers will not change. On the other hand, a decrease in production costs will lead to an expansion of production, a decrease in unemployment, and the economy will return to a state of full employment.
Thus, the classics believed that there are certain tools in the market mechanism that allow maintaining GNP at the potential level and unemployment at the natural level automatically (without government intervention). The main instruments for achieving equilibrium are: commodity prices, wages and interest, the flexibility and volatility of which ensures the maintenance of general economic equilibrium.
Graphically, the macroeconomic equilibrium in the interpretation of the classics is shown in fig. 22.1.

Equilibrium is reached at the point of intersection of the curves AD and AS. The equality of aggregate demand to aggregate supply means that the equilibrium volume of national production (GNP) and the equilibrium price level (ie, the level at which buyers are willing to buy as much as sellers are willing to produce and sell) have been reached.
The Keynesian school offers a different interpretation of the essence of macroeconomic equilibrium. Criticism of the classical theory of macroeconomic equilibrium by Keynesians boils down to two main points: equality of investment with savings is not achieved automatically, and wages and prices are inflexible.
As for investments and savings, they cannot be in constant equilibrium due to the fact that investments and savings are carried out by different economic entities, and the motives that guide investors and "savers" are also different. In addition, if investments really depend on the interest rate, then according to Keynes, savings are determined not by the level of the interest rate, but primarily by income (Y), i.e.

I=f(i), S=f(Y),
where I - investment demand;
i - interest rate;
S - savings;
Y - income (gross national product).
The equilibrium between savings and investment in the Keynesian interpretation is achieved at a certain level of income (GNP). By plotting GNP on the x-axis, and savings and investment on the y-axis, we can determine the amount of GNP that ensures their balance (Fig. 22.2).

Only when the volume of GNP is equal to Qe, savings exactly match the planned investment expenditures, and the economy is in a state of equilibrium. With Qi, planned investment expenditures are greater than savings. Low saving means increased consumption and aggregate spending. With a low level of savings, total spending will rise, pushing production to expand, to increase GNP to Qe. At Q2, savings are greater than investments. The growth of savings leads to a reduction in consumption, which means that part of the output is not sold, and producers are forced to reduce production. The economy is moving towards equilibrium, towards Qe.
At first glance, it may seem that the more the population saves, the better it is: after all, savings are a source of investment. However, it is not. The nation that consumes more rather than saves is richer. This is the so-called "paradox of thrift". Its essence is this.
An increase in savings means a reduction in consumer spending, which is part of aggregate demand. A fall in demand will lead to a decrease in GNP, income and, consequently, a decrease in savings in the future. The growth of savings today means their reduction in the future. However, it must be kept in mind that the paradox of thrift is manifested only in conditions of incomplete use of resources, while in conditions of full employment, an increase in savings can lead to lower prices.
As for the second postulate of the classical theory of equilibrium - the position on the flexibility of prices and wages, it is also refuted by the Keynesians. They believe that an increase in unemployment does not automatically lead to a reduction in the established level of wages, production costs and, consequently, prices. Under conditions of price inflexibility, wage and interest constancy, macroeconomic equilibrium can be achieved only if the total expenditures of GNP are equal.
According to Keynes, the economy is in equilibrium if, at constant prices, the expected output is equal to the planned total expenditure. Total expenditures (AE) include: consumption (C), investment (I), government spending (G) and net exports (Ep), i.e. In fact, Keynesians understand aggregate expenditure as aggregate demand at constant prices, wages, and interest rates:
AE \u003d C + I + G + En.
Obviously, if the planned expenditures are greater than GNP, or vice versa, then there will be no equilibrium in the economy. Let's consider these problems in more detail.
First, we will proceed from the fact that total expenditures are expenditures on personal consumption and investments, i.e. we will analyze only the private sector (without the state) of a closed (excluding foreign trade) economy. In this case, macroeconomic equilibrium is achieved when planned consumer and investment spending is equal to the volume of the gross national product (Fig. 22.3).

The bisector in fig. 22.3 displays the state of equilibrium: any point on it indicates the equality of GNP to the sum of consumer and investment spending. If GNP corresponds to Q\, this means that households and entrepreneurs tend to spend more than the economy can actually produce (planned spending is greater than real GNP). The volume of GNP is only enough for consumption, and investments cannot be made.
However, the presence of unsatisfied investment demand stimulates entrepreneurs to expand production and increase GNP. With volume Qe, an equilibrium is reached between total costs and output. With Q2, the volume of production turns out to be more than the planned costs, manufacturers cannot sell all their products and are forced to reduce production to Qe.
If you look closely at the graph, you can see that the inclusion of investments in total expenditures leads to an increase in GNP that is greater than the amount of investment. As shown in topic 2, the excess of GNP growth over investment is explained by the multiplier effect.
An increase in output at constant prices can occur until GNP reaches the potential, and unemployment reaches the natural level. Expansion of production beyond these limits will lead to higher prices.
Further analysis of the Keynesian model involves the inclusion of government spending and net exports in total spending.
The state influences the amount of total expenditures in two ways, by purchasing goods and services, which directly affects the value of AE, and by influencing the amount of disposable income and, accordingly, the level of consumption and savings through taxes and transfer payments. Let us analyze the impact of government purchases on the value of GNP.
The mechanism of the impact of public procurement on output in the short run is the same as the impact of investment. By increasing the volume of government purchases, the government is injecting into the national economy. Government purchases, joining the planned consumer and investment spending, increase aggregate demand and GNP (Fig. 22.4).

Rice. 22.4. Equilibrium taking into account government purchases

If total expenditures are considered only as the sum of consumer and investment expenditures, then, as can be seen from Fig. 22.4, equilibrium is reached at GNP equal to Q1. Adding government purchases to these costs increases total spending and shifts the AE curve to AE1. Accordingly, macroequilibrium is achieved at a higher value of GNP - Q2.
It is necessary to pay attention to the fact that the growth of government spending leads to an increase in GNP greater than the initial impulse. As with investments, this is due to the multiplier effect. The government spending multiplier (MRg) characterizes the ratio of GNP growth to government spending growth and is equal to the reciprocal of the marginal propensity to save (MP5).
MRg = 1: MP8.
The multiplier effect of government purchases is due to the fact that their increase increases income and leads to an increase in consumption, which in turn increases income, which contributes to a further increase in consumption, etc. This transition from consumption to income and back to consumption continues indefinitely.
The cumulative effect of public procurement is equal to their growth multiplied by the multiplier:
AGNP = AO x MRg.
Since the multiplier works in both directions, it is clear that the reduction in government purchases will lead to a reduction in GNP and incomes greater than their reduction.
However, in the long run, the consequences of changes in public procurement are different than in the short run. The growth of GNP and income, as a result of an increase in government purchases, increases investment demand, which, with the same amount of money in circulation, leads to an increase in interest rates and a decrease in actual investment and, consequently, to a decrease in economic growth in the future.
Finally, the fourth element of total expenditure is net exports. Adding net exports to total spending increases the equilibrium GNP. If imports are greater than exports, then this excess reduces the value of GNP and equilibrium is reached at a lower value of GNP. As in the case of investment and government purchases, net exports affect the value of GNP with a multiplier effect.
Thus, the Keynesian direction in economic theory, in contrast to the classical one, which believes that supply generates income and thereby creates demand, proceeds from the fact that the engine of economic development is aggregate demand, it is it that determines aggregate supply. Aggregate supply is derived from aggregate demand, it focuses on the expected aggregate demand.
The Keynesian interpretation of macroeconomic equilibrium is shown in fig. 22.5. The graph illustrating the equilibrium of the economic system as the point of intersection of planned expenditures and income was called the "Keynesian cross".

Rice. 22.5. ".Keynesian Cross"

The Keynesian cross shows how planned consumer spending, investment spending, government purchases, and net exports affect output. The economic system is in equilibrium only when planned expenditures equal income (GNP).

What is decisive for macroeconomic equilibrium, according to the views of supporters of the classical direction in economic theory?
How do classical economists explain the flexibility of prices, wages, and interest?
Why does saving upset the equilibrium? How does investment affect equilibrium? How does the classical school explain the balance between savings and investment?
What were the main tenets of the classical school that Keynes criticized?
What does saving and investment depend on, according to Keynes? How is the balance between them ensured?
What is the essence of the "paradox of thrift"?
Analyze the total expenditure-GNP model.
What happens in the economy when investment, government purchases and net exports change?

The previous analysis of aggregate demand and aggregate supply, as well as the assumptions for explaining the state of macroeconomic equilibrium, allow us to consider how changes in aggregate demand and aggregate supply are reflected in the equilibrium price level and equilibrium output.
Let us first consider the consequences of a change in aggregate demand with a constant supply. However, since the equality of aggregate demand to aggregate supply on different segments of the "synthetic" curve of aggregate supply is achieved at different values of GNP and prices, the consequences of changes in aggregate demand will depend on the analyzed section of the aggregate supply curve.
Change in aggregate demand on the horizontal (Keynesian) segment of aggregate supply
The growth of aggregate demand makes it possible to increase the real volume of GNP (Q2 > Qi) without rising prices. Since the economy operates under conditions of underemployment, it becomes possible to expand production without increasing its costs (many unemployed people can be attracted without raising wages). A reduction in aggregate demand on the Keynesian segment of aggregate supply will reduce GNP (Q3< Q1), приведет к увеличению безработицы, но не затронет цены (рис. 22.6).

An increase in aggregate demand leads to an increase in GNP, a decrease in unemployment and is accompanied by an increase in prices (Q2 > Qi; P2 > P1). The increase in prices is due to the fact that as production expands, unemployment decreases, and entrepreneurs will have to pay more wages to attract additional labor, which will lead to higher production costs and higher prices. A decrease in aggregate demand will lead to a decrease in GNP, an increase in unemployment and a decrease in prices.
Change in aggregate demand in the vertical segment of aggregate supply (Fig. 22.8)

An increase or decrease in aggregate demand will not affect either the real volume of GNP or the level of employment (unemployment is at a "natural" level). The economy is at the frontier of its production possibilities; under these conditions, production cannot be expanded (Q const). With a change in aggregate demand, the volume of GDP and the level of employment will remain constant. As far as prices are concerned, when demand increases, prices will rise; when demand decreases, they should fall. However, the thesis about lower prices when aggregate demand falls is not indisputable.
There is a point of view according to which, with a fall in demand in the classical and intermediate segments, prices do not decrease. If they fall, then not to the original level. In this case, equilibrium is reached with less or the same volume of production, but at the initial (before the fall in demand) price level. The constancy of prices in the intermediate and classical segments of aggregate supply with a decrease in aggregate demand is explained by the effect of the "ratchet" effect in the economy (a ratchet is a mechanism that allows you to turn the wheel forward, but not backward, for example, a winding mechanism for a mechanical watch).
The ratchet effect is the tendency for prices to rise when aggregate demand rises and to remain at their level when aggregate demand falls. Prices are flexible, but only upwards. In the opposite direction, they practically do not move, do not decrease.
Now consider the consequences of a change in aggregate supply with the same aggregate demand (Fig. 22.9).

An increase in supply under the influence of non-price factors leads to a shift in the curve to position AS2 and a corresponding increase in real gross national product, a reduction in unemployment and a decrease in the price level.
A reduction in supply under the influence of the same factors will shift the AS1 curve to AS3 and lead to a corresponding decrease in real GNP and an increase in prices (inflation).
The state of the economy, in which the volume of national production is reduced, unemployment is growing and prices are rising, is called stagflation (Russia in the mid-90s).
Having considered the problem of macroequilibrium, one should answer the question: does equilibrium mean macroeconomic stability (sustainable economic growth, full employment, price stability)? The answer will be negative - and at equilibrium, unemployment and inflation are possible.
If the volume of national production is sufficient to meet all planned expenditures, i.e. there is an equilibrium, but the equilibrium GNP is less than the potential, possible at full employment, which means that the production capabilities of society are not fully used, there is a recessionary gap.
The recessionary gap is the amount by which total spending corresponding to equilibrium GNP is less than potential gross national product. The presence of a recessionary gap indicates underproduction and underemployment (Fig. 22.10).

Rice. 22.10. recessionary gap

The equality of the planned total expenditures (AE \) to the produced GNP is achieved at Qe. At the same time, potential GNP is equal to Qp, i.e. with full use of resources, large expenses are possible, corresponding to (AE ^). Lack of spending has a depressing effect on the economy.
The expansion of supply with the growth of aggregate demand is not unlimited. If production capacities are fully used and supply cannot be increased, then an increase in aggregate demand will lead to an increase in prices and inflation. The inflationary gap is the amount by which total spending exceeds potential gross national product (Figure 22.11).

If equilibrium occurs at potential GNP (Qp), and the planned total expenditure (AE1) is greater than the total expenditure possible at potential GNP (AE2), then prices begin to rise, nominal GNP increases. The emerging inflationary gap characterizes the difference between planned expenditures and expenditures corresponding to potential GNP.
Thus, macroeconomic equilibrium can also be achieved in conditions of incomplete use of resources. Hence the creation of conditions that ensure the achievement of macroeconomic goals, the prevention, elimination of recessionary and inflationary gaps - the functions of the state. By pursuing an appropriate fiscal and monetary policy, the government seeks to ensure macroeconomic balance in conditions of full employment and price stability.

What are the consequences of changes in aggregate demand on the Keynesian, intermediate and classical parts of the aggregate supply curve?
What is the "ratchet" effect?
What happens in an economy if aggregate supply changes while aggregate demand remains constant? What is stagflation?
Explain the essence of the recessionary gap.
How does an inflationary gap arise?

Basic concepts and terms

macroeconomic equilibrium,
classical theory of macroeconomic equilibrium,
price flexibility,
wages and interest
Keynesian theory of macroeconomic equilibrium,
savings-investment models,
"aggregate demand - aggregate supply"
"total expenditure - GNP",
"ratchet" effect,
stagflation,
recessionary and inflationary gaps.

An economy is in equilibrium when aggregate demand and aggregate supply match. The classical school proceeds from the fact that supply (production) creates demand and thus ensures the equilibrium of aggregate demand and aggregate supply. The Keynesian school proceeds from the fact that demand forms supply and is the main factor that ensures macroeconomic equilibrium. According to classical views, macroequilibrium is automatically maintained by the flexibility of prices, wages, and interest rates. The Keynesian model of macroeconomic equilibrium assumes that total expenditures (consumption, investment, government purchases and net exports) are equal to GNP at constant prices. In a closed economy, without taking into account government spending, macroeconomic equilibrium is achieved when consumer and investment spending are equal to GNP or when savings are equal to investments.

The consequences of a change in equilibrium as a result of a change in aggregate demand depend on where on the aggregate supply curve the economy is located. So, the consequence of the growth of aggregate demand may be: an increase in equilibrium GNP at constant prices, an increase in equilibrium GNP and an increase in prices, an increase in prices without changing the volume of GNP. As a result of the fall in aggregate demand under the influence of the "ratchet" effect, the equilibrium GNP may decrease or remain unchanged without a decrease in the general price level. A situation where a reduction in the supply (production) of real GNP is accompanied by an increase in prices is called stagflation.
Macroeconomic balance does not guarantee the achievement of macroeconomic goals. If the equilibrium GNP is less than potential, then the economy has underproduction (resources are not fully used). The difference between total spending corresponding to equilibrium GNP and potential GNP is called the recessionary gap. The excess of total spending over potential GNP generates demand-pull inflation and is called the inflationary gap.

Macroeconomic equilibrium is such a state of the national economy when the use of limited production resources to create goods and services and their distribution among different members of society are balanced, i.e. there is an overall proportionality between:

Resources and their use;

Factors of production and the results of their use;

Aggregate production and aggregate consumption;

Aggregate supply and aggregate demand;

Intangible and financial flows.

Consequently, macroeconomic equilibrium presupposes the stable use of their interests in all spheres of the national economy.

Such a balance is an economic ideal: without bankruptcies and natural disasters, without social and economic upheavals. In economic theory, the macroeconomic ideal is the construction of models of the general equilibrium of the economic system. In real life, various violations of the requirements of such a model occur. But the significance of theoretical models of macroeconomic equilibrium makes it possible to determine the specific factors of deviations of real processes from ideal ones, to find ways to implement the optimal state of the economy.

For macroeconomics, equilibrium means equality between aggregate demand and aggregate supply. At the same time, for macroeconomics, the optimal state is when aggregate demand coincides with aggregate supply (Fig. 1). It is called macroeconomic equilibrium and is reached at the point of intersection of the aggregate demand (AD) and aggregate supply (AS) curves.

The intersection of the curves of aggregate demand and aggregate supply determines the equilibrium price level and the equilibrium real volume of national production. It means that at a given price level (P E) the entire produced national product (Y E) will be sold. Here we should keep in mind the ratchet effect, which consists in the fact that prices rise easily, but hardly fall. Therefore, with a decrease in aggregate demand, prices cannot be expected to fall for a short period. Producers will respond to a decrease in aggregate demand by reducing output and only then, if this does not help, lower prices. The prices of goods and resources, once rising, do not immediately fall when aggregate demand decreases.

Figure 1 Macroeconomic equilibrium

We can distinguish the following signs of macroeconomic equilibrium:

compliance with public goals and real economic opportunities;

full use of all economic resources of society - land, labor, capital, information;

balance of supply and demand in all major markets at the micro level;

free competition, equality of all buyers in the market;

the immutability of economic situations.

Distinguish between general and particular macroeconomic equilibrium. General equilibrium means such a state of the economy as a whole, when there is a correspondence (coordinated development) of all spheres of the economic system, taking into account the interests of society and its members, that is, the overall proportionality and proportionality between the most important parameters of macroeconomic formation: economic growth factors and their use; production and consumption, consumption and accumulation, demand for goods and services and their supply; material and financial flows, etc.

In contrast to the general (macroeconomic) equilibrium, which covers the economic system as a whole, the private (local) equilibrium is limited to the framework of individual aspects and spheres of the national economy (budget, money circulation, etc.). General and particular equilibrium are relatively autonomous. Thus, the absence of partial equilibrium in any link of the economic system does not mean that the latter as a whole is not in equilibrium. And vice versa, the lack of balance in the economic system does not exclude the lack of balance in its individual links. However, the well-known independence of general and particular equilibrium does not mean that there is no interconnection and internal unity between them. After all, the state of the macroeconomic system as a whole cannot but affect the functioning of its individual parts. In turn, the processes in local areas cannot but have a certain impact on the state of the macroeconomic system as a whole.

As a condition for general (macroeconomic) equilibrium in the economy, one can single out: firstly, the correspondence of social goals and opportunities (material, financial, labor, etc.); secondly, the full and effective use of all factors of economic growth; thirdly, the conformity of the structure of production with the structure of consumption; fourthly, market equilibrium, the balance of aggregate demand and supply in the markets of goods, labor, services, technologies and loan capital, which must interact with each other.

The actual macroeconomic balance of the entire system, not subject to natural processes, inflation, business recession and bankruptcies, is ideal, theoretically desirable. Such an equilibrium is characterized by the complete optimality of the implementation of economic behavior and the interests of subjects in all structural elements, sectors and areas of macroeconomics. However, to ensure this balance, a number of reproduction conditions are required (all individuals can find consumer goods on the market, and entrepreneurs can find factors of production, the entire social product must be sold, etc.). In the economic life of society, these conditions are usually not met. Therefore, there is a real macroeconomic equilibrium, which is established in the economic system in conditions of imperfect competition and with external factors influencing the market.

However, the ideal economic equilibrium, which is abstract in nature, is necessary for scientific analysis. This macroeconomic equilibrium model makes it possible to determine the deviations of real processes from ideal ones, to develop a system of measures to balance and optimize reproduction proportions.

Thus, all economic systems strive for an equilibrium state. But the degree of approximation of the state of the economy to the ideal (abstract) macroeconomic equilibrium model depends on the socio-economic, political and other objective and subjective conditions of society.

There are the following models of macroeconomic equilibrium: classical and Keynesian.

Classical model of macroeconomic equilibrium dominated economic science for about 100 years, until the 30s of the XX century. It is based on J. Say's law: the production of goods creates its own demand. Each producer is simultaneously a buyer - sooner or later he acquires a product produced by another person for the amount received from the sale of his own product. Thus, macroeconomic equilibrium is provided automatically: everything that is produced is sold. This similar model assumes the fulfillment of three conditions:

each person is both a consumer and a producer;

all producers spend only their own income;

income is spent in full.

But in the real economy, part of the income is saved by households. Therefore, aggregate demand decreases by the amount of savings. Consumption spending is insufficient to purchase all of the products produced. As a result, unsold surpluses are formed, which causes a decline in production, an increase in unemployment and a decrease in income.

In the classical model, the lack of funds for consumption caused by saving is compensated by investment. If entrepreneurs invest as much as households save, then J. Say's law is valid, i.e. the level of production and employment remains constant. The main task is to encourage entrepreneurs to invest as much money as they spend on savings. It is solved in the money market, where supply is represented by savings, demand - by investments, price - by the interest rate. The money market self-regulates savings and investment with the help of the equilibrium interest rate (Fig. 2).

The higher the interest rate, the more money is saved (because the owner of the capital receives more dividends). Therefore, the savings curve (S) will be upward. The investment curve (I), on the other hand, is downward-sloping because the interest rate affects costs and entrepreneurs will borrow more and invest more money at a lower interest rate. The equilibrium rate of interest (r 0) occurs at point E. Here the amount of money saved is equal to the amount of funds invested, or, in other words, the amount of money offered equals the demand for money.

Figure 2 Classical model of the relationship between investment and savings

The second factor that ensures equilibrium is the elasticity of prices and wages. If, for some reason, the rate of interest does not change at a constant ratio of savings to investment, then the increase in savings is offset by a decrease in prices, as producers seek to get rid of excess products. Lower prices allow for fewer purchases while maintaining the same levels of output and employment.

In addition, a decrease in demand for goods will lead to a decrease in demand for labor. Unemployment will create competition and workers will accept lower wages. Its rates will decrease so much that entrepreneurs will be able to hire all the unemployed. In such a situation, there is no need for government intervention in the economy.

Thus, classical economists proceeded from the flexibility of prices, wages, and interest rates, i.e., from the fact that wages and prices can move freely up and down, reflecting the balance between supply and demand. According to them, the aggregate supply curve AS has the form of a vertical straight line, reflecting the potential output of GNP. A decrease in price entails a decrease in wages, and therefore full employment is maintained. There is no reduction in real GNP. Here, all products will be sold at different prices. In other words, a decrease in aggregate demand does not lead to a decrease in GNP and employment, but only to a decrease in prices. Thus, the classical theory believes that the economic policy of the state can only affect the price level, and not the volume of production and employment. Therefore, its intervention in the regulation of the volume of production and employment is undesirable.

The classics concluded that in a market self-regulating economy. Able to achieve both full output and full employment, government intervention is not required, it can only harm its efficient functioning.

Summarizing the above, we can conclude that the classical model of the equilibrium volume of production based on the law of J. Say assumes:

Absolute elasticity, flexibility of wages and prices (for factors of production and finished products);

Highlighting aggregate supply as the engine of economic growth;

Equality of savings and investments, achieved through free pricing in the money market;

The tendency to match the volume of aggregate supply and the potential of the economy, so the aggregate supply curve is represented by a vertical line;

The ability of a market economy, with the help of internal mechanisms, to self-balance aggregate demand and aggregate supply at full employment and full use of other factors of production.

Keynesian model.

In the early 1930s, economic processes no longer fit within the framework of the classical model of macroeconomic equilibrium. Thus, a decrease in the level of wages did not lead to a decrease in unemployment, but to its growth. Prices did not decrease even when supply exceeded demand. No wonder many economists criticized the position of the classics. The most famous of them is the English economist J. Keynes, who in 1936 published the work “The General Theory of Employment, Interest and Money”, in which he criticized the main provisions of the classical model and developed his own provisions for macroeconomic regulation:

1. Savings and investment, according to Keynes, are carried out by different groups of people (households and firms) guided by different motives, and therefore they may not coincide in time and in magnitude;

2. The source of investment is not only the savings of households, but also the funds of credit institutions. Moreover, not all current savings will end up in the money market, since households leave part of the money on hand, for example, to pay off bank debt. Therefore, the amount of current savings will exceed the amount of investment. This means that Say's law does not work and macroeconomic instability sets in: an excess of savings will lead to a reduction in aggregate demand. As a result, output and employment are reduced;

3. The interest rate is not the only factor influencing savings and investment decisions;

4. Lowering prices and wages does not eliminate unemployment.

The fact is that there is no elasticity of the ratio of prices and wages, since the market under capitalism is not completely competitive. Price cuts are hindered by monopolists-manufacturers, and salaries are prevented by trade unions. The classical argument that lowering wages in one firm would allow it to hire more workers turned out to be inapplicable to the economy as a whole. According to Keynes, a decrease in the level of wages causes a decline in incomes for the population and entrepreneurs, which leads to a decrease in demand for both products and labor. Therefore, entrepreneurs will either not hire workers at all, or will hire a small number.

So, the Keynesian theory of macroeconomic equilibrium is based on the following provisions. The growth of national income cannot cause an adequate increase in demand, since an increasing share of it will go to savings. Therefore, production is deprived of additional demand and is reduced, causing an increase in unemployment. Therefore, an economic policy that stimulates aggregate demand is needed. In addition, in conditions of stagnation, depression of the economy, the price level is relatively immobile and cannot be an indicator of its dynamics. Therefore, instead of the price, J. Keynes proposed to introduce the “sales volume” indicator, which changes even at constant prices, because it depends on the quantity of goods sold.

The Keynesians believed that the government could boost GNP and employment by increasing government spending, which would increase demand and prices would hardly change as output increased. With an increase in GNP, there will be an increase in employment. Consequently, in the model of J. Keynes, macroeconomic equilibrium does not coincide with the potential use of production factors and is compatible with a decline in production, the presence of inflation and unemployment. If the situation of full use of factors of production is reached, then the aggregate supply curve will take a vertical form, i.e. actually coincides with the long-term AS curve.

Thus, the volume of aggregate supply in the short run depends mainly on the magnitude of aggregate demand. Under conditions of underemployment of factors of production and price rigidity, fluctuations in aggregate demand cause, first of all, changes in the volume of output (supply) and only subsequently can be reflected in the price level. Empirical evidence supports this position.

It can be concluded that the most important provisions in the Keynesian theory of macroeconomic equilibrium are the following:

The most important factor determining the level of consumption, and, consequently, the level of savings, is the amount of income received by the population, and the level of investment is mainly influenced by the size of the interest rate. Since savings and investment depend on different and independent variables (income and interest rate), there may be a discrepancy between investment plans and savings plans;

Since savings and investments cannot automatically balance, i.e. in a market economy there is no mechanism that independently ensures economic stability; state intervention in the economic life of society is necessary;

The engine of economic growth is the effective aggregate demand, since in the short run the aggregate supply is a given value and is largely guided by the expected aggregate demand. For this reason, the state must, first of all, regulate the necessary volume of effective demand.

Summing up, we can conclude that both the classics and Keynesians did a lot for the knowledge of macroeconomic equilibrium, but, unfortunately, as practice has shown, the models of macroeconomic equilibrium built by them acted only for a short period of time, which, in my opinion, is not surprising, since at least economic laws are objective, but any decision in the economy, one way or another, is made by people, and they are subjective. Therefore, much remains to be done to create the conditions for macroeconomic balance to be maintained.

The key problem of economic theory and practice is macroeconomic equilibrium. As you know, any system strives to achieve an equilibrium state and maintain it, and the macroeconomic system is no exception.

A feature of maintaining balance in this system is that its functioning is ensured through the activities of people endowed with will, consciousness and divergent interests, so the balance is not achieved spontaneously and has specific laws and conditions.

resources and their use;

factors of production and the results of their use;

aggregate production and aggregate consumption;

aggregate supply and aggregate demand;

material and financial flows.

Consequently, macroeconomic equilibrium presupposes the stable use of their interests in all spheres of the national economy.

According to social criteria, macroeconomic equilibrium implies the achievement in the country of a situation that would suit business and the vast majority of the population, as well as the government and the immediate external environment of the country.

Macroeconomic balance is the state of the economy, accompanied by a coordinated dynamism of the most important components of the economic system, the interconnected development of its main structural blocks, which ensures the implementation of key strategic goals of socio-economic development in the long term.

Unlike the concept of economic equilibrium, which implies, in a narrow sense, equilibrium in several aggregated markets, equality between resources and their use, the balance of economic development at the macro level is a broad and multifaceted concept, meaning the achievement of proportionality between and within sectors, spheres and elements of the economy, ensuring balance its private terms:

internal and external markets;

regional sectoral, including between the real and financial sectors;

reproductive, which determines the continuity of the reproduction process;

technological, assuming homogeneity, proportionality of the level of development of interconnected industries, complexes: balance of forms of management (correlation between the public and private sectors, between large, medium and small businesses), etc. .

The national market consists of two large sectors: the market for factors of production and the market for consumer goods. In turn, each of them includes many different segments and varieties. Particular attention should be paid to the labor market, as well as money capital, securities, etc.

Market equilibrium is characterized by equilibrium price and equilibrium volume.

The equilibrium price is the price at which the quantity demanded in the market is equal to the quantity supplied. On a supply and demand graph, it is determined at the point of intersection of the demand curve and the supply curve.

Equilibrium volume - the volume of demand and supply of goods at an equilibrium price.

Movement towards equilibrium between aggregate demand and aggregate supply also depends on general economic conditions. In particular, it is influenced by the state policy in the social sphere, tax and structural policy and other factors. This movement is also influenced by disruptions in the economy (for example, a sharp rise in oil prices).

It should be noted that macroeconomic equilibrium cannot be considered as a static state, it is very dynamic and hardly achievable in principle, like any ideal state.

Macroeconomic equilibrium is classified into several types.

First, there are general and partial equilibrium.

partial balance - this is a quantitative correspondence (or equality) of two interrelated parameters, for example, production and consumption; purchasing power and commodity weight; income and expenses in the budget; supply and demand, etc.

Achieving this or that partial equilibrium is the most important prerequisite for establishing the general equilibrium of the national economy.

General equilibrium is the coordinated development of all spheres of the economic system. Partial disequilibrium can lead to a general disequilibrium.

Both depend on political, social and demographic factors, on the methods of state regulation of the economy.

The achievement of general equilibrium means that the national economy has acquired a special qualitative state (Figure 1.1).

Among the conditions of general equilibrium in the economy, the following can be distinguished.

The first condition is the correspondence of social goals to economic opportunities. If opportunities are limited, then economic development is hampered.

Figure 1.1 - General and partial equilibrium

The second condition is full employment and optimal use of resources while maintaining capacity reserves and a normal level of employment. There should be neither excess nor shortage of resources.

The third condition is that the overall structure of production must correspond to the structure of consumption .

The fourth condition is the general equilibrium of supply and demand in all major markets , so that there is no shortage or overproduction in society.

Thus, the general equilibrium acts as a balanced and coordinated functioning of all segments of the single national market, as a special qualitative state of the national economy. Aggregate demand and aggregate supply are formed on the basis of individual and sectoral market demand and supply.

Secondly, equilibrium can be short-term (current) and long-term.

Thirdly, equilibrium can be ideal (theoretically desirable) and real. The prerequisites for achieving perfect equilibrium are the presence of perfect competition and the absence of side effects. It can be achieved on the condition that all participants in economic activity find consumer goods on the market, all entrepreneurs find factors of production, and the entire annual product is fully realized. In practice, these conditions are violated.

Equilibrium can also be stable and unstable. An equilibrium is said to be stable if, in response to an external impulse that causes a deviation from equilibrium, the economy returns to a stable state on its own. If, after an external influence, the economy cannot self-regulate, then the equilibrium is called unstable. The study of sustainability and the conditions for achieving a general economic equilibrium is necessary to identify and overcome deviations, i.e. to conduct an effective economic policy of the country.

Violation of the balance of economic development is due to the emergence of macroeconomic imbalances - deformation of basic proportions, distortion of fundamental (optimal) relationships between the most important elements of the reproduction system, violation of the internal stability of its main components.

Disbalance means that there is no balance in various spheres and sectors of the economy. This leads to losses in the gross product, a decrease in the income of the population, the emergence of inflation and unemployment. In order to achieve an equilibrium state of the economy, to prevent undesirable phenomena, experts use macroeconomic equilibrium models, the conclusions from which serve to substantiate the macroeconomic policy of the state.

In a broad sense, the balance of economic development at the macro level implies the maintenance and preservation in the long term of a certain dynamic and structural relationship between and within the four key macroeconomic balances that determine the development potential and the stability of the reproduction system:

balance of aggregate supply and domestic demand;

income and expenses of economic agents;

demand and supply of money;

balance of payments .

The discrepancy between the real equilibrium and the ideal, or theoretically desired one, does not detract from the importance of a theoretical analysis of the patterns of social reproduction and the development of abstract schemes and models of macroeconomic equilibrium. These models help to understand the economic mechanism, identify factors that deviate from ideal processes, and form an optimal economic policy. To date, economic theory has a large set of macroeconomic equilibrium models that characterize the features of approaches to this problem in different historical periods.

There are many models of macroeconomic equilibrium, which differ significantly from each other. And although in practical life none of them can exist in its pure form, it is very important to study them, to identify quantitative relationships between the parameters of the models.

Let us briefly characterize some models of macroeconomic equilibrium.

The first model of macroeconomic equilibrium is the model of F. Quesnay - the famous "Economic Tables". They are a description of simple reproduction in the French economy of the 18th century.

One of the first was developed by L. Walras, a Swiss economist and mathematician, who tried to find out on the basis of what principles the interaction of prices, costs, volumes of demand and supply in various markets is established, whether the equilibrium is stable, and also to answer some other questions.

Walras used the mathematical apparatus. In his model, he divided the world into two large groups: firms and households. Firms act as buyers in the factor market and as sellers in the consumer goods market. Households that own factors of production act as their sellers and at the same time buyers of consumer goods. The roles of sellers and buyers are constantly changing. In the process of exchange, the expenses of producers of goods are converted into household expenses, and all household expenses are converted into income of firms.

The prices of economic factors depend on the size of production, demand, and hence on the prices of goods produced. In turn, the prices of goods produced in society depend on the prices of factors of production. The latter should correspond to the costs of firms. At the same time, firms' incomes must be matched with household expenditures.

Having built a rather complex system of interrelated equations, Walras proves that the system of equilibrium can be achievable as a kind of "ideal" to which a particular market aspires. Based on the model, Walras's law was obtained, which states that in a state of equilibrium, the market price is equal to marginal cost. Thus, the value of a social product is equal to the market value of the factors of production used to produce it, aggregate demand is equal to aggregate supply, the price and volume of production do not increase or decrease.

The state of equilibrium, according to Walras, implies the presence of three conditions:

1) the demand and supply of factors of production are equal, a constant and stable price is set for them;
2) the demand and supply of goods and services are also equal and are realized on the basis of constant, stable prices;
3) the prices of goods correspond to production costs.

The Walrasian model gives a simplified, conditional picture of the national economy and does not show how equilibrium is established in dynamics. It does not take into account many of the social and psychological factors that affect supply and demand in reality. Thus, the model considers only established markets with established infrastructure.

At the same time, the concept of Walras and his theoretical analysis provide the basis for solving more specific practical problems related to the violation and restoration of equilibrium.

The development of Walrasian ideas also takes place in the works of the American economist V. Leontiev, whose algebraic theory of the analysis of the “cost-output” model in the forties of the twentieth century made it possible to numerically solve large systems of equations, called “balance” ones.

For the development of this macroeconomic model of general market equilibrium, Leontiev received the Nobel Prize. This model links all phases of reproduction - production, distribution, exchange and consumption. Leontiev was the first to draw up an input-output balance (IOB), which consists of 4 sections.

The first section reflects the intermediate product of the national economy and characterizes the totality of all material costs for the year. This is a chess table, the branches of production are listed horizontally and vertically. The columns show the current costs for the production of a particular product, in the rows - the distribution of products aimed at industrial consumption.

The second section of the IEP deals with the final product.

The third section characterizes the process of formation of the cost of the final product as the sum of net production and depreciation.

In the fourth - they show the elements of redistribution and final use of the national income.

The classical model of macroeconomic equilibrium can be represented as a system of several equations that characterize three interrelated markets and make it possible to determine the equilibrium values of employment, output, investment, savings, nominal wages, the average price level, and the average bank interest rate.

The interaction of the goods market and the labor market is carried out through the relationship between output and employment, as well as through the relationship between wages and prices. The markets for goods and money also interact because interest rates affect spending decisions, while income and prices affect interest rates (Figure 1.2).

Figure 1.2 - Interaction of the market of money, goods and labor

In these markets, in the view of classical economists, it allows you to get a complete picture of the classical macroeconomic model.

This similar model assumes the fulfillment of three conditions:

each person is both a consumer and a producer;

all producers spend only their own income;

income is fully spent.

In a formalized form, the macroeconomic model of the classical school can be represented by the system of the following equations:

1) Y=Y(L)- production function;
2) L s =L s (W)- the function of labor supply;

3) - equilibrium demand for labor from business;
4) S=S(r)- savings function;
5) I=I(r)- investment function;
6) S=I- a condition of equilibrium in the market of goods;
7) M=kPU- formula of the Cambridge school.

The above equations as a whole give a complete characterization of the macroeconomic views of theorists of the classical school. However, taken together, these equations do not form a single system. The first three equations reflect real reproductive flows, and the last four equations characterize cash flows. It should be noted that the first three equalities make it possible to determine the number of people employed in the economy (L), the level of income (Y) for a given number of employees and certain technological conditions, and real wages (W). Moreover, the equilibrium in this market is established by all dependence on the market of economic goods and does not affect the level of the interest rate (r) in any way. Equilibrium in the labor market, which is established at full employment, has a certain impact on the level of aggregate demand and aggregate supply. In turn, the equilibrium state between AD and AS forms the price level, which is established in the economic system.

The emerging relations in the market of goods and services are characterized by equations 4.5 and 6. The representation of the classical school that all goods in the market of economic goods will find their buyers (S = I) can only be realized when a single interest rate (r) is established .

The last equation (7), which characterizes the circulation of money, determines the value of the money supply depending on the price level, and, according to the conditions of the classical dichotomy, does not depend on the other two markets. Consequently, the system of equations describing the macroeconomic model as a whole, in accordance with the principle of classical dichotomy, includes two blocks of equations representing, respectively, the real and monetary sectors of the economy.

Along with the algebraic interpretation of the classical macroeconomic model of the classical school, the latter can be represented graphically - Figure 1.3.

Equilibrium employment () through the production function (quadrant IV) determines the position of the aggregate supply line (quadrant I). The aggregate demand function in the classical theory depends only on the amount of money and is derived from the quantitative formula of money. A change in the mass of money (M) affects only the price level (P). Therefore, with an increase in the money supply, the line of aggregate demand (AD) shifts to the right (quadrant I). The line of aggregate supply (AS) remains unchanged (principle of classical dichotomy). An increase in prices leads to a corresponding increase in nominal wages (W) while the level of real wages remains unchanged (quadrant II).

The chart in the third quadrant shows the equilibrium in the market

Thus, the classical model of general economic equilibrium illustrates the process of self-regulation: the economy is in a state of equilibrium, there is no need for the state to interfere in the national economic sphere (the principle of state neutrality), since the flexibility of prices, nominal wages and interest rates ensures that the system is automatically brought into equilibrium. At the same time, the principle of classical dichotomy is observed, i.e. the monetary and real sectors are independent of each other.

Conclusion. Macroeconomic, or general economic, equilibrium is such a state of the national economy when there is a balance between aggregate demand and aggregate supply.

Conditions of macroeconomic equilibrium in the economy:

1. Compliance with social goals and economic opportunities.
2. Ensuring capacity reserves and a normal level of employment.
3. Bringing the structure of consumption into line.

The condition for general equilibrium in the economy is market equilibrium, the equilibrium of supply and demand in all major markets.

There are partial, general and real equilibrium. Partial is the equilibrium that is established in individual markets for goods. General equilibrium acts as a single interconnected system formed by all market processes on the basis of the law of free competition. The real macroeconomic equilibrium is established in the market in fact in conditions of imperfect competition and external factors influencing the market.

Economists distinguish other types of macroeconomic equilibrium. This is equality between resources and their use, production and consumption, material and financial flows, savings and investments. But the main thing is the balance between aggregate demand and aggregate supply, without which the market economy cannot develop.

There are many models of macroeconomic equilibrium that differ in different methodological approaches and take into account various factors that affect the equilibrium. There is no single universal model for the equilibrium of the economy; it cannot exist in principle. Despite many differences in the construction of macroeconomic models, they all have one common principle - the analysis of the interaction of aggregate demand and aggregate supply.

Of considerable interest are the model of macroeconomic equilibrium developed by Keynes and his followers. These models will be discussed in more detail in the next chapter.

Resources and their use;

Factors of production and the results of their use;

Aggregate production and aggregate consumption;

Aggregate supply and aggregate demand;

Intangible and financial flows.

Consequently, macroeconomic equilibrium presupposes the stable use of their interests in all spheres of the national economy.

Figure 1 Macroeconomic equilibrium

We can distinguish the following signs of macroeconomic equilibrium:

compliance with public goals and real economic opportunities;

full use of all economic resources of society - land, labor, capital, information;

balance of supply and demand in all major markets at the micro level;

free competition, equality of all buyers in the market;

the immutability of economic situations.

Distinguish general and private macroeconomic balance. General equilibrium means such a state of the economy as a whole, when there is a correspondence (coordinated development) of all spheres of the economic system, taking into account the interests of society and its members, that is, the overall proportionality and proportionality between the most important parameters of macroeconomic formation: economic growth factors and their use; production and consumption, consumption and accumulation, demand for goods and services and their supply; material and financial flows, etc.

There are the following models of macroeconomic equilibrium: classical and Keynesian.

Classical model of macroeconomic equilibrium dominated economic science for about 100 years, until the 30s of the XX century. It is based on J. Say's law A: The production of goods creates its own demand. Each producer is simultaneously a buyer - sooner or later he acquires a product produced by another person for the amount received from the sale of his own product. Thus, macroeconomic equilibrium is provided automatically: everything that is produced is sold. This similar model assumes the fulfillment of three conditions:

each person is both a consumer and a producer;

all producers spend only their own income;

income is spent in full.

Figure 2 Classical model of the relationship between investment and savings

The second factor that ensures equilibrium is the elasticity of prices and wages. . If, for some reason, the rate of interest does not change at a constant ratio of savings to investment, then the increase in savings is offset by a decrease in prices, as producers seek to get rid of excess products. Lower prices allow for fewer purchases while maintaining the same levels of output and employment.

Summarizing the above, we can conclude that the classical model of the equilibrium volume of production based on the law of J. Say assumes:

absolute elasticity, flexibility of wages and prices (for factors of production and finished products);

highlighting aggregate supply as the engine of economic growth;

equality of savings and investments, achieved through free pricing in the money market;

a tendency to match the volume of aggregate supply and the potential of the economy, so the aggregate supply curve is represented by a vertical line;

the ability of a market economy, with the help of internal mechanisms, to self-balance aggregate demand and aggregate supply with full employment and full use of other factors of production.

Keynesian model.

3. The interest rate is not the only factor influencing savings and investment decisions;

4. Lowering prices and wages does not eliminate unemployment.

It can be concluded that the most important provisions in the Keynesian theory of macroeconomic equilibrium are the following:

Economic theory: lecture notes Dushenkina Elena Alekseevna

4. Macroeconomic balance

Any economic system will successfully function and develop if the demand for goods and services produced in the country is equal to their supply, that is, if equilibrium is reached.

Aggregate demand includes: consumer spending (population's demand for goods and services); investment costs (demand of enterprises for means of production); public spending (purchases by the state of goods and services); net export spending.

The same laws apply to aggregate demand as to individual demand. It is influenced by the real volume of production and the price level (see Fig. 14).

Rice. 14. Dependence of aggregate demand on the price level and real volume of production

The aggregate demand curve AD has the same shape as the individual demand curve.

Aggregate demand is the relationship between the price level and the volume of national production. The law of demand, as applied to aggregate demand, means that the relationship between the real volume of production for which demand is presented and the general price level is inverse. Aggregate demand is influenced by various non-price factors:

1) changes in consumer spending, which in turn depend on changes in consumer income, expectations, changes in tax rates, consumer debt. A consumer's high level of indebtedness may force him to reduce his current consumption;

2) changes in investment costs, which depend on the introduction of new technologies, on the amount of taxes from enterprises, expected profits from investments, interest rates, the amount of excess capacity. For example, the introduction of new technologies may lead to increased investment costs;

3) changes in government spending, the increase in which leads to an increase in aggregate demand;

4) changes in spending on net exports.

Aggregate supply is a certain amount of goods and services offered for sale by the public and private sectors. Any economic system strives to achieve maximum output. It depends on factors such as the quantity and quality of labor used, capital goods, resources; technology, costs.

Aggregate supply depends on the volume of production and the level of prices, which should not only cover costs, but also provide profit with an increase in national output. A decrease in commodity prices leads to a reduction in production volumes, and the relationship between the price level and the volume of national production is direct. This dependence is graphically shown in Figure 15 as an aggregate supply curve, which consists of three sections:

Rice. 15. Aggregate supply curve

KL - at a certain price level, the volume of production can be increased at constant prices (for example, there are idle resources); this section is usually called Keynesian; it characterizes an economy in a state of depression;

MN - the potential level of production has been reached, i.e., with the full use of all resources; this section is called classical;

KM - in some industries, full employment has been achieved, while in others there is room for expansion; this section is called ascending.

In addition, a number of non-price factors also influence the aggregate supply:

1) labor productivity, with the growth of which there is an increase in aggregate supply;

2) prices for resources, the growth of which leads to an increase in production costs, and, consequently, to a reduction in aggregate supply;

3) legal norms, the change of which leads to a change in production costs:

a) changes in taxes (increasing the tax burden will reduce aggregate supply) and subsidies (increasing subsidies will expand aggregate supply);

b) state regulation.

Macroeconomic balance- the state of the national economy, when aggregate demand is equal to aggregate supply. The state of macroeconomic equilibrium is practically unattainable and its theoretical model is shown in Figure 16, where AD is the aggregate demand curve, AS is the aggregate supply curve. The intersection of these curves gives the point of macroeconomic equilibrium (theoretical), which means that at a given price level, the entire volume of the produced national product will be sold.

Rice. 16. State of macroeconomic equilibrium

Signs of macroeconomic balance:

1) compliance with general goals and real economic opportunities;

2) full use of all resources;

3) bringing the overall structure of production in line with the structure of consumption;

4) balance of supply and demand at the micro level;

5) free competition;

6) continuous development of the economy.

Consumption is the lifeblood of society. Money is spent on consumption, and the higher the level of development of society, the higher the level of consumption, and, consequently, the standard of living.

In economics, consumption is considered in the form of those monetary expenditures that the population spends on the purchase of goods and services. The higher the income level of the population, the higher the demand for goods and services. However, the structure of expenses in families with different incomes differs from each other. The higher the family income, the more money it spends on food (through the purchase of quality and expensive products) and the more money is spent on the purchase of non-food durables and luxury goods. Therefore, the national consumption model cannot be represented as a set of consumption of individual families. The German statistician E. Engel worked on the tasks of assessing and characterizing national consumption, who developed qualitative consumption models, which are commonly called Engel's laws - features of budget spending depending on changes in income. To characterize consumption, Engel introduced a function that characterizes the relationship between disposable income and consumption. Distinguish:

1) the function of consumption in the short term, when consumption is focused on meeting current needs, and saving is carried out by reducing consumption in the future;

2) the function of consumption in the long run;

3) income function, which takes into account different incomes of the population.

Savings and consumption form disposable income:

Saving + Consumption = Income

Saving aims to reduce current consumption and increase future consumption. Savings can be in the form of:

1) accumulation of cash (in national or foreign currency);

2) bank deposits;

3) acquisition of bonds, shares and other securities.

To assess the level of consumption and savings in economic theory, the following indicators are used:

1) the average propensity to consume APC is the share of total income that goes to consumption:

APC = Consumption / Income;

2) the average propensity to save APS is the share of total income that goes to savings:

APS = Saving / Income.

In addition to income, consumption and savings are affected by:

1) wealth (real estate and financial resources of families); as wealth increases, consumption increases and saving decreases;

2) the price level has a different effect on families with different incomes;

3) expectations of price increases lead to a situation where consumption increases and saving decreases;

4) consumer debt (if debt is high, then current consumption is reduced);

5) taxation (an increase in taxes leads to a reduction in both consumption and savings);

6) contributions to social insurance (an increase in contributions may cause a reduction in savings);

7) rush demand (leads to a sharp increase in consumption);

8) an increase in the supply of goods (leads to a reduction in savings).

The situation when aggregate demand is balanced by aggregate supply, i.e., static macroeconomic equilibrium is achieved, cannot be practically achieved. Market equilibrium is characterized by a dynamic model. Let us consider the main provisions of the models describing macroeconomic equilibrium.

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Topic 22. Macroeconomic balance

Question 1. Conditions of macroeconomic equilibrium. Question 2. Changes in macroeconomic equilibrium.

Basic concepts and terms

Question 1. Conditions of macroeconomic equilibrium.
Question 2. Changes in macroeconomic equilibrium.