Definition
Macroeconomic equilibrium is the state in which the total quantity of goods and services demanded across an economy equals the total quantity supplied. It is represented by the intersection of the aggregate demand curve and the aggregate supply curve, and it pins down two headline numbers at once: real output and the overall price level.
Unlike equilibrium in a single market, this is an economy-wide balance. It does not guarantee full employment or low inflation; it simply marks the point where spending plans and production plans are consistent with one another.
Why it matters
How it works
A shift in aggregate demand, say from a tax cut or a spending surge, moves the economy along the supply curve to a new intersection with higher output and prices. A supply shock, such as an energy price spike, shifts aggregate supply and can raise prices while cutting output, the stagflation case.
In the long run the economy gravitates toward equilibrium where aggregate demand meets vertical long-run aggregate supply, so output settles at potential and only the price level reflects demand pressure.