Sunday, February 5, 2017

A General equilibrium analysis

                  Macro-Economics analysis is based on General Equilibrium Analysis. This analysis deals with entire economy in the context of equilibrium. It studies the behaviour of number of economic variables at a time and takes into consideration their functional relationship and interdependence in doing so.

This approach assumes "Everything depends on everything else."

Since this approach deals with whole economy, it has to explain how aggregate supply and aggregate demand are brought into equality, and how equilibrium between these forces determine, not only price level, but also level of income and employment. This whole analysis involves the study of number of variables and their interactions.