Reference no: EM132482730

Textbooks describe macroeconomic equilibrium in terms of aggregate demand or expenditures and aggregate output or supply being equal or in balance. They also illustrate the equilibrium income level with a graphical device- (sometime referred to as the Keynesian Cross) where equilibrium is identified as that point at which the aggregate demand or expenditures line intersects the 45 degree line (which supposedly represents aggregate supply)

However, in as much as the "real world" has no great graph in the sky that tells the economy (along with spenders and producers) if and when it is in equilibrium or not, and how and when to adjust, how does the real-world economy know these things? In your answer indicate what condition or force would reveal that a prevailing income level is or is not an equilibrium level and what would drive the adjustment process (if needed) and how?