Question
State equilibrium condition of an economy.
Solution
Equilibrium Condition 
An economy is in equilibrium when Aggregate (AD) = Aggregat Supply (AS). AD consists of consumption expenditure (C.) and investment expenditure (i). So AD = C + I. On the other hand, aggregate supply (AS) or total output represents national income (Y) of a country, So AS = Y. Thus in a two-sector economy, the equilibrium condition AD = AS actually means Y = C + I. Hence equilibrium level of income (output) is obtained by solving the equation Y = C + I. Let us further simplify this equation by substituting the values of C and I.
Equilibrium condition implies that whatever is produced by firms is either consumed by the households or invested by the firms. There is neither surplus nor shortage in the economy.
An economy is in equilibrium when Aggregate (AD) = Aggregat Supply (AS). AD consists of consumption expenditure (C.) and investment expenditure (i). So AD = C + I. On the other hand, aggregate supply (AS) or total output represents national income (Y) of a country, So AS = Y. Thus in a two-sector economy, the equilibrium condition AD = AS actually means Y = C + I. Hence equilibrium level of income (output) is obtained by solving the equation Y = C + I. Let us further simplify this equation by substituting the values of C and I.Equilibrium condition implies that whatever is produced by firms is either consumed by the households or invested by the firms. There is neither surplus nor shortage in the economy.
