What is equilibrium GDP?
The gross domestic product (GDP) is an important economic indicator used to evaluate the financial health of the nation as a whole. The addition of the total financial value of all goods and services that were produced in the country within one year is calculated. For example, GDP for the United States (USA) has been more than $ 14 trillion in the US (USD) since 2011, although this value changes every year. Equilibrium GDP occurs when businesses in a nation create exactly the amount of goods and services that people want to buy. From an economic point of view, equilibrium GDP can be defined as the level of GDP, where there is aggregated demand and aggregated supply equals.
Aggregated demand represents the total amount of goods and services that people are willing to and can buy. In the US, for example, aggregated demand equals all products and services produced in the US that people buy at domestic or international level. Graphically, aggregated demand is displayed as downsoclocation ping where demand is higher at low prices and lowerfor high price points.
Aggregated offer is the total value of goods and services produced in the country in a single year. If each source in the country is put to work at maximum efficiency, the aggregated offer and GDP will always be the same. These sources include everything from work to equipment and natural resources. Since this type of efficiency is rare, the aggregated offer tends to increase with rising price levels. This can be graphically displayed as a UPSLOPING line where the price and GDP are proportionally increased.
Graphically, the equilibrium GDP can be found by finding a point where the aggregated curves of the supply and demand intersect. Since these values change over time, it moves curves, equilibrium GDP is also constantly changing. For example, the aggregated offer may increase over time, even if all sources are already used with maximum efficiency. This occurs when the technological progress of UMIt brings businesses to generate a larger output from the same amount of input. In real world scenarios, most economies can increase the agregal offer and equilibrium GDP by improving overall efficiency.
changes in aggregated demand can also affect equilibrium GDP. When the price level increases, people can afford fewer products and services, leading to a decline in aggregated demand. This results in a reduction in equilibrium GDP. Inverse is also true where lower prices lead to an increase in aggregated demand and to increase equilibrium GDP