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Mechanisms That Would Bring About Macroeconomic Equilibrium - Essay Example

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Mechanisms That Would Bring About Macroeconomic Equilibrium

How our currency fares in comparison and competition with those of other countries and its fluctuations and ups and downs are included in this category.
However, in the floating exchange rate system the currency rate is determined by the forces of demand and supply and thus, central banks cannot help there. However, Government intervention could help bring macro-economic equilibrium in this case. Through the use of laws and regulations, it could prove to be a worthy and useful mechanism in this regard.
Taxes and subsidies imposed by Government on producers of different commodities are one of them. Secondly, tariffs are another factor in this regard. They might take the form of quotas, embargos and other forms of tariff regimes.
The state of economy also matters. Whether the economy is in a state of a boom [good economic period with high GDP] or in a state of slump [bad economic period with low levels of GDP] also affects the exchange rates. ...Show more

Summary

Equilibrium is the situation where there is no tendency for change. The economy can be in equilibrium at any level of economic activity that is a high level (boom) or a low level (recession). Due to the size of many modern economies, equilibrium is a very temporary state, as changing variables shift affect the economy.
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Mechanisms That Would Bring About Macroeconomic Equilibrium essay example
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