An economist is building a model to predict the effects of a sudden, unexpected rise in global oil prices on a national economy. Why is it a standard and methodologically sound practice for the economist to assume the economy was in a state of supply-side equilibrium before this event occurred?
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Figure 5.3: A Fall in Investment and Aggregate Demand
The Policymaker's Sweet Spot as an Initial Equilibrium
The Policymaker's 'Sweet Spot' as an Initial Equilibrium
Evaluating the Baseline Assumption in Macroeconomic Models
The primary reason economists assume an economy is in a state of supply-side equilibrium before analyzing an economic shock is that real-world economies are almost always in this stable condition.
The Role of Initial Equilibrium in Economic Modeling
Methodology of Economic Shock Analysis