Q. Describe Supply and demand in macroeconomics?
In microeconomics, we are careful to distinguish between demand, supply and observed quantity. The first two are hypothetical concepts that denotes the desired quantities from households and firms under numerous conditions. Observed quantity is the quantity which consumers actually end up buying from the firms.
The key difference is that supply and demand are functions - they depend on other variables - whereas observed quantities are variables. These functions are generally explained in a chart where we explain how supply and demand depend on other variables.
In macroeconomics, we also consider demand and supply of many of the variables. So far, every variable has represented an observed quantity. For illustration L has been the symbol for the actual number of hours worked, a variable that we can measure. Though we have not made any distinction between demand and supply of labor that we need to do from now on. The variables for which we will consider the supply and the demand are: Y, L, K M, C, I, G, X and Im.
In order to separate the supply and demand from the observed quantity, we use subscript S for supply and subscript D for demand. For illustration, L is still the observed amount of work (a variable) whereas LS and LD represent the supply of labour and demand for labour. Remember that LS and LD are functions which may depend on different variables in different models.