Macroeconomic Equilibrium
Plain definition
The combination of price level and real GDP where aggregate demand equals short-run aggregate supply, and in the long run where both equal long-run aggregate supply at potential GDP.
In economics
Short-run equilibrium occurs at the intersection of AD and SRAS, which can produce a recessionary or inflationary gap if output differs from potential GDP. Long-run equilibrium is where AD, SRAS, and the vertical LRAS all intersect: the economy is at potential GDP, and the only effect of demand shifts is on the price level.
Example
Consumer spending collapses, shifting aggregate demand left. The new AD-SRAS intersection is below potential GDP with a lower price level: a recessionary gap. Over time, falling wages shift SRAS right until the economy returns to potential GDP at an even lower price level.
Macroeconomic equilibrium is confused with market equilibrium in a single market. A single-market equilibrium balances one good's supply and demand; macroeconomic equilibrium balances the entire economy's spending against its production capacity, and short-run equilibrium can persist away from potential GDP.