The Concept of Stable Equilibrium

Economic equilibrium is a situation, where aggregate market demand and aggregate market supply equate with each other. However, this equilibrium situation can be stable or unstable. In this report, the concept of stable equilibrium will be discussed. Moreover, there are some external factors, which can influence this equilibrium condition of a country. These are labour employment, entire price level, consumer preferences, inflation rate and some other external forces (Emerson & McGough, 2018). However, under a stable equilibrium condition, no external factors can change this equilibrium condition. Hence, each country wants to attain this stable equilibrium condition. In this report, the economic condition of United States, Australia and China will be analysed. Some real statistical data of these three countries will be given to understand the actual market condition. Moreover, it will be analysed that whether the economic condition of each country is in equilibrium or not. To analyse this report, a proper economic theory based ton aggregate demand and aggregate supply will be considered. After analysing this whole topic, a conclusion will be drawn based on those analyses.

Theory:

Market equilibrium is an important concept of economics. Under stable market equilibrium, aggregate supply and aggregate demand of a country will remain in balance. Moreover, an equilibrium output and an equilibrium price level will be obtained. Under a stable market condition, this equilibrium price level and output level will always remain fixed (Brekke, Golombek, Kaut, Kittelsen & Wallace, 2017). If any external forces change these equilibrium positions, the market will automatically adjust itself. Hence, the initial equilibrium position will be reached again. There are two economic concepts related to this stable market equilibrium. One concept is given by the economist Marshal and the other is given by the economist Walras. In Marshallian stable equilibrium condition, equilibrium quantity is changed due to the shift of demand or supply curve (Goeree, & Lindsay, 2016). On the other hand, in Walrasian equilibrium condition, equilibrium price is changed. However, in both situations, the stable market condition is ultimately occurred after self adjustment.

In Marshalling stable equilibrium, demand curve is downward slopping and supply curve is upward rising. This can be described with a suitable diagram.

Figure 1: Marshallian stable equilibrium condition

Sources: (created by author)

In the above diagram, a downward slopping demand curve and an upward rising supply curve is drawn. These two curves cut each other at a particular point. Corresponding to this point, an equilibrium level of output, Q_0, will be generated_. Moreover, an equilibrium level of price, P_0, will also be generated. If there will be any change of demand or supply curve, an automatic mechanism will be occurred. There will be either excess demand or excess supply. Excess demand will increase the price level and excess supply will decrease the price level.

Economic Condition Analysis of US and its Equilibrium Condition

The Walrasian stable equilibrium condition can be analysed with the same diagram, that is, figure 1. In this situation, due to changes of demand and supply curve, price level changes (Davey, 2015). The market will reach to its initial equilibrium price level, by adjusting its output level. 

Stability under Macroeconomic concept:

The stable market equilibrium concept can also be seen in the real world macroeconomic situation. In this context, the stable economic situation occurs when aggregate demand and aggregate supply of a country equates with each other (Emerson & McGough, 2018). Here, equilibrium level of national income and equilibrium level of aggregate price level will be obtained. Moreover, there are some other macroeconomic concepts that can influence a country’s stable equilibrium conditions. These are inflation rate, unemployment and growth of national income and so on.

U.S.A

U.S.A is one of the most important developed countries with significant economic conditions. The country has faced a constant growth in their gross domestic product for the last ten years. Increasing rate of GDP helps a country to maintain a stable economic condition (Coccia, 2017). Here, the GDP growth rate of U.S.A from the year 2008 to 2016 is described. This trend can be understood clearly by a line diagram.

Figure 2: GDP growth rate of U.S.A in U.S. Dollar

Source: (tradingeconomics.com, 2018)

In figure 2, G.D.P growth rate of U.S.A is shown. This GDP trend fluctuated from the year 2008 to 2012. After that year, GDP of U.S.A did not fluctuate to a large extent. Hence, the U.S.A economy has shown a stable equilibrium condition.

On the other hand, unemployment rate of U.S.A was increasing significantly from the year 2008 to 2010. However, after 2010, this unemployment rate was decreasing continuously (Jorgenson, Gollop & Fraumeni, 2016). It implies that the U.S.A economy is increasing its employment opportunity. Moreover, it will indicate a positive sign for increasing the national income level of the country.

Figure 3: Unemployment Rate of U.S.A

Source: (tradingeconomics.com, 2018)

This decreasing rate of unemployment rate is shown by the above diagram. From this line graph, it can be easily seen that the country has generated various employment opportunities for its citizens. This will increase the per capita income of U.S.A.

In this context, inflation rate of U.S.A should also be described. Higher level of inflation is not good for a country’s economy (Broll & Wong, 2015). It will reduce the growth level of this country. Hence, to see that whether the economic condition of U.S.A is stable or not, inflation rate of this country for previous 10 years will be discussed. This will be shown by the following line diagram.

Economic Condition Analysis of Australia and its Equilibrium Condition

Figure 4: Inflation Rate of U.S.A

Source: (tradingeconomics.com, 2018)

In figure 4, inflation rate of U.S.A is shown. This rate was fluctuated from the year 2008 to 2011. However, after 2011, the country has faced more or less same GDP growth rate. Hence, this U.S.A economy is facing a stable equilibrium condition.

After analysing the growth rate of gross domestic product, unemployment rate and inflation rate of U.S.A, a static economic condition can be seen. Moreover, the U.S.A government tries to implement some more policies to maintain this static economic condition.

In Australia, the economic condition can also be analysed by using some statistical data. Here, GDP growth rate, unemployment rate and inflation rate of this country will be discussed to understand the economic condition of this country (McCombie & Thirlwall, 2016). This country has one of the most significant economic conditions, all over the world. At first, GDP growth rate of this country is shown by a line diagram.

Figure 5: GDP growth rate of Australia in U.S. Dollar

Source: (tradingeconomics.com, 2018)

In figure 5, the GDP growth rate of Australian is shown. This growth rate was fluctuated from the year 2008 to 2012. However, after 2012, the country has faced almost a stable growth rate. Though afther2016, the country has faced a drastic fall in the GDP for the first quarter of 2017.

On the other hand, unemployment rate of Australia has fluctuated for last ten years. At first, the unemployment rate was low. After that, this unemployment rate has increased for the year 2014 and 2015. However, in 2016, this level has decreased.

Figure 6: Unemployment Rate of Australia

Source: (tradingeconomics.com, 2018)

The unemployment rate of Australia has shown in the figure 6. Form the above figure, it can be stated that the Australian government has faced an increasing unemployment rate from the year 2008to 2098. After that, the unemployment rate fluctuated from the year 2010 to 2015. After 2015, this rate has decreased. Hence after 2015, the country has enjoying a stable unemployment level.

Moreover, inflation rate of Australia will also be seen to analyse the economic condition of this country.

Figure 7: Inflation Rate of Australia

Source: (tradingeconomics.com, 2018)

It can be stated form the above diagram that the inflation rate is fluctuated over time. From the year 2012, this inflation rate has increased. However, after that, this rate has been decreased since last two years. Hence, from 2015, the country is facing a stable rate of inflation.

Economic Condition Analysis of China and its Equilibrium Condition

Hence, after analysing the GDP growth trend, unemployment rate and inflation rate of Australia, it can be stated that the country is facing a stable equilibrium condition for the last 3 or 4 years.

After analysing the economic condition of Australia, the economic condition of China will be discussed. To analyse the market condition of China, data of GDP growth trend, unemployment rate and inflation rate will be measured. Here data is also taken from 2008 to 2016.

Figure 8: GDP Growth Rate of China in U.S Dollar

Source: (tradingeconomics.com, 2018)

The GDP growth trend of China has been fluctuated to a large extend since 2012. Hence, the economic condition of China is not stable. Sometimes, the growth rate has increased to a large number and sometimes this rate has fallen drastically.

After analysing this unstable GDP trend of China, unemployment rate of this country will be discussed. To discuss this rate, the following diagram is provided.

Figure 9: Unemployment Rate of China

Source: (tradingeconomics.com, 2018)

This unemployment level of China increased from 2008 to 2009. After that, this rate decreased drastically, up to the year 2011. After that, a stable unemployment condition was seen. However, after 2016, the country is facing a decreasing rate of unemployment. Hence, from the above diagram, it is difficult to conclude any stable condition of China.

After analysing an unstable unemployment rate in China, the inflation rate can be analysed. By analysing inflation rate, the economic condition of China can be understood.

Figure 10: Inflation Rate of China

Source: (tradingeconomics.com, 2018)

In figure 10, the inflationary rate of China is shown. From this line diagram, it can be seen that the country is facing a stable economic condition from the year 2012. The economy has enjoyed almost a stable inflation rate.

Conclusion:

After analysing all macro economic factors, the economic condition of U.S., Australia and China has been analysed in this report. Those factors are gross domestic product, unemployment rate and inflationary rate. After analysing those factors, it can be seen that CU.S and Australia are facing almost stable equilibrium condition. However, China is not facing any stable equilibrium condition. Its GDP growth rate and unemployment rate are fluctuating drastically, over time.   

Reference:

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Australia Inflation Rate | 1951-2018 | Data | Chart | Calendar | Forecast. (2018). Tradingeconomics.com. Retrieved 13 January 2018, from https://tradingeconomics.com/australia/inflation-cpi

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