Long-term macroeconomics studies aggregate supply and demand for various economic activities, including output, consumer demand, employment levels, and inflation. In free market economies, supply can increase as companies hire more employees, leading to full employment and potential inflation. Business cycles drive long-run macroeconomics, with peaks indicating little growth and contractions leading to destructive capitalism.
Macroeconomic studies define both short-term and long-term assets. Long-term macroeconomics examines the aggregate supply and demand for a large number of various economic activities. These items may include, among others, output, consumer demand, employment levels, and inflation. In short, long-run macroeconomics increase output to meet full employment, which also tends to increase inflation. Several months or years could be the long run period, although in many cases this has no definite definition.
In free market economies, corporations determine the quantity of goods on offer in the market. The balance between supply and demand represents the point at which total supply meets total demand, creating an acceptable price for goods and services. In the long-run macroeconomy, supply can slowly increase as companies hire more employees. This leads to full employment in the economy as more workers are needed to produce more goods or services. Full employment may include a small percentage of unemployed workers, such as four or five percent.
Increases in supplies require the use of more resources, such as direct materials or facilities to produce goods. In long-run macroeconomics, economic growth can lead to inflation, classically defined as too many dollars chasing too many goods. Natural inflation due to this growth is not necessarily negative. Higher prices for goods and services can be offset by higher wages for employees. These wage increases come as companies require more employees or more skilled employees to ramp up production.
In some cases, the supply curve can shift to the left in long-run macroeconomics. This occurs due to the increased production created by more companies entering the market. For example, successful economies will attract more companies to the market, especially from foreign investment. If there is no change in the demand curve, higher supply is the result for goods and services. While this could result in a glut of unpurchased produce, prices could fall as companies attempt to reduce inventories, limiting increases in inflation.
Business cycles are often the driving force in long-run macroeconomics. The stage where there is a strong balance between supply and demand may represent a peak in the business cycle. The peak may indicate a point where there is little or no growth in the economy, although the economy is doing well. At some point, the economy can enter a period of contraction. The result is a destructive capitalism, in which inefficient firms disappear and only the strong survive, with new companies likely entering the market to consume the weaker firms.
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