• Low unemployment
• Low and stable rate of inflation
• Stable economic growth
• Balance of payments equilibrium.

• STABLE = Steady and balanced
• UNSTABLE = Not secure and imbalanced

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

• 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)

• 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.

• 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?

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D
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W
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ECONOMIC CYCLE
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
RECESSION
• is a significant decline in economic activity spread
across the economy, lasting more than a few months

• 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

• 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
BOOM
• occurs when real national output is rising at a rate faster than the trend rate of growth.

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