Dynamic Analysis (Macro Dynamics) is the study of the process by which the economy moves from one equilibrium point to another as a result of a change in macroeconomic variables. The concept of dynamic analysis is illustrated in the diagram below:
In the above figure, Initial equilibrium point E where the level of income is OY. With the increase in investment, initial equilibrium shifts from E to E1 and the level of income increases from OY to OY1. When income increases due to an increase in investment, consumption demand also increase. This further increases investment to meet the increased demand. So the income goes on increasing till the final equilibrium is reached at E1 through the path a, b, and c.
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Static Analysis (Macro Statics)
Comparative Analysis (Comparative Macro Statics)
