Question

How do economists define equilibrium in financial markets?

Short answer

Equilibrium is the state in which market supply and demand are balanced, resulting in steady prices.

Step-by-step solution

Definition

Market equilibrium:

When the supply and demand curves are combined, there is a point where they intersect, which is known as market equilibrium. There is no shortage or excess at the equilibrium price because the quantity of the good that buyers are willing to buy equals the quantity that sellers are willing to sell.

Explanation

The state of equilibrium is when market supply and demand are matched, resulting in stable prices. In general, when there is an overabundance of goods or services, prices fall, resulting in higher demand, and when there is a shortage or undersupply, prices rise, resulting in reduced demand.

Conclusion

Therefore, the quantity of loanable money required equals the quantity supplied in equilibrium.