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Direction: Read the passage and answer the question
Title: "The Theory of Economic Equilibrium"
In economic theory, the concept of equilibrium holds a central position. It represents a state where economic forces balance, resulting in stability and absence of net change. Understanding this theoretical construct is crucial for predicting market behaviours and making informed economic decisions.
The equilibrium price, for instance, is the price at which the quantity of a good or service demanded by buyers equals the quantity supplied by producers. This equilibrium point signifies a balance in the market, where neither surpluses or shortages exist.
One key factor influencing equilibrium is the law of supply and demand. When demand for a product or service exceeds its supply, prices tend to rise, encouraging producers to increase their output. Conversely, when supply exceeds demand, prices tend to fall, incentivizing producers to reduce production.
Moreover, the concept of equilibrium extends beyond individual markets to macroeconomic equilibrium. This pertains to the overall balance between aggregate demand and aggregate supply in an economy. Achieving macroeconomic equilibrium is a primary objective for economic policymakers, as it signifies a state of full employment and stable price levels.
Understanding the intricacies of economic equilibrium requires a nuanced grasp of the factors affecting supply and demand dynamics, as well as the broader economic conditions influencing market behaviours. It serves as a foundational principle for economic analysis and decision-making.
Question:
In macroeconomic terms, what does achieving equilibrium imply?
A state of full employment and stable price levels
A state of constant inflation
A state of continuous economic growth
A state of high unemployment and fluctuating prices
Answers (1)
The passage states that achieving macroeconomic equilibrium signifies a state of full employment and stable price levels.
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