MACROECONOMIC OBJECTIVES Low unemployment Low and stable rate of inflation Stable economic growth Balance of payments equilibrium. LET’S REVIEW

Economic Stability

STABILITY INSTABILITY NEW WORDS STABLE = Steady and balanced UNSTABLE = Not secure and imbalanced INSTABILITY

DEFINITION Economic stability refers to an economy that experiences constant growth and low inflation.  What are the advantages?

ADVANTAGES Economic Equity (in income distribution) Advantages of having a stable economy include: increased productivity improved efficiencies low unemployment.  Low inflation Better living standard (GDP per capita) Economic Equity (in income distribution) Good leadership (Government policy)

Signs of Instability Common signs of an instability are extended time in a recession or crisis, rising inflation, and instability in currency exchange rates. a decline in consumer confidence, stunted economic growth, and reduced international investments.

EXAMINING ECONOMIC STABILITY Businesses cycles are commonly used to examine economic stability. A business cycle is composed of a depression, recession, recovery, and peak stage. 

How do economic cycles affect economic stability?

D O W N S W I N G

ECONOMIC CYCLE RECESSION SYMPTOMS A fall in purchases of raw materials Rising unemployment and fewer job vacancies A rise in the number of business failures A decrease in consumer spending & a rise in income saved A drop in the value of exports and imports of goods and services Deep price discounts to sell excess stocks Government tax revenues are falling and welfare spending is rising The budget (fiscal) deficit is rising quickly is a significant decline in economic activity spread across the economy, lasting more than a few months

RECOVERY A recovery might follow a deliberate attempt to stimulate demand. Cuts in interest rates  A rise in government borrowing  A policy of quantitative easing (QE) by the Bank in a bid to increase the supply of loans A temporary cut in the rate of VAT or tax consumer subsidy for households

BOOM A fast growth of consumption  Increase in the demand for capital goods  Increase in businesses investment More jobs and falling unemployment  higher real wages for people in work High demand for imports (trade deficit) Government tax revenues will be rising An increase in inflationary pressures occurs when real national output is rising at a rate faster than the trend rate of growth.

Measures to achieve stability Government spending Taxes Interest rates Subsidies Unemployment Technology Resources How would each of these affect AD and AS Can you think of any news events to show how these measures can be applied in practice?

What we try to avoid !!!!!!

Final thought!