Macroeconomic goals and macroeconomic equilibrium are the key elements in macroeconomics. What are the long-run macroeconomic goals? What is long-run macroeconomic equilibrium? How the goals are relate to the macroeconomic equilibrium?

The key goals of macroeconomic policy are maximum employment, price stability, steady economic growth, and smoothing out of business cycles. Business cycles are the ups and downs in an economy that are accompanied by expansion and contraction of GDP and swings in various economic indicators such as unemployment, wages, and consumer prices.

Long-run macroeconomic equilibrium refers to a state of the economy where real GDP demanded equals real GDP supplied and also the potential GDP. Potential GDP is what the economy is capable of producing given all the factors of production available to it (the amount of labor, capital, land and entrepreneurship) and given the total factor productivity (all the intangibles such as state of technology and institutions).

The macroeconomic goals are related to the long-run equilibrium because they indicate the key metrics used by policymakers in their constant endeavor to lead the economy to the long-run equilibrium. Volatility and the resulting uncertainty associated with a business cycle is detrimental to all of the stakeholders including consumers, employees, businesses and government. Reducing this volatility means smoothing out a business cycle. Policymakers use various monetary and fiscal policy tools to smooth out cycles. For example, if unemployment is too high, they lower interest rates (a monetary stimulus) and if prices are too high, they may raise interest rates. Policymakers want to create conditions which are conducive for long-term growth of the economy. However, they are aware that such conditions frequently lead to overheating and a bubble.

In summary, the policy tools available to policymakers are not perfect and while they usually produce the desired effect in the real economy, the magnitude of the effect is hard to predict and often comes with time lags. This necessitates constant monitoring of how the economy is performing on the key goals as the market forces in an economy readjust to attain the long-run equilibrium.