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| Structural & Dynamic
Macroeconomic Equilibrium Analysis
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These are different aspects of overall economic balance which must be maintained -- at full-employment levels -- in order to maintain stable, sustainable, full-employment economic growth. There are complex interrelationships among them. But for incisive analysis and effective policy, it is essential to distinguish clearly between them. (No suitably developed longer text is now available for online posting.)
The Current Empirically-Measurable Supply/Demand Balances
- Credit Balance -- between the supply of financial saving and the credit-financing of GDP spending. This balance, which largely determines real interest rates, should be maintained mainly by fiscal policy (FASTA).
- Money-Inventory Balance -- between the supply of M1 money stock and the economy's demand for medium-of-exchange inventory. This balance, which largely determines the GDP growth rate and the "real" balance, is controlled primarily by the Monetary Agency.
- "Real" Balance -- between total GDP spending and the economy's productive capacity. This is the basic balance of Keynesian/NIPA analysis, and is a primary determinant of both unemployment and inflation rates (although, contrary to traditional belief, these are not systematically related). Controlled primarily by monetary policy.
Longer-Run Structural Balances.
(Influenced by institutional, technological and policy factors.)
- "Pie-Chart" Structural Balance -- long-run sustainable structural relationships in a stable full-employment economy. (See "Saving-Investment Money Flows" diagram, and IEA Pocket Charts.)
- Dynamic balance -- between "elastic stimulants" (such as consumer credit and stock market booms) and "institutional depressants" (such as monopolistic market power and gross inequalities of income and wealth). Government policy can do much to prevent and/or offset these destabilizing deviations from long-run sustainable structural relationships. (See IEA Pocket Charts)
- Market Power (Pricing Power) Balance -- between buyers and sellers. This balance partially determines both prices and the distribution of income and wealth.