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What is Economic Stability?

By Carrieanne Larmore
Updated May 16, 2024
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Economic stability refers to an economy that experiences constant growth and low inflation. Advantages of having a stable economy include increased productivity, improved efficiencies, and low unemployment. Common signs of an instability are extended time in a recession or crisis, rising inflation, and volatility in currency exchange rates. An unstable economy causes a decline in consumer confidence, stunted economic growth, and reduced international investments.

The growth of international trade and commerce has allowed for the economy of one country to affect the stability of others. When a country’s economy becomes unstable, it can experience a large reduction in international investments and spending. Foreigners can also lose significant money if their investments are within a country experiencing instability. For example, if an investor in France purchased real estate within the U.S. before the economic crisis of 2008, the value of the investment may have dropped to irrecoverable lows even after the U.S.’s recovery.

Businesses cycles are commonly used to examine economic stability. A business cycle is composed of a depression, recession, recovery, and peak stage. If the economy has extreme differences between its depression and peak stages, it could be considered economically unstable. If the economy is stuck in a depression or recession for an extended period, it is also considered unstable. Countries normally experience periods of instability as they enter the depression or recession stages of the business cycle, or a financial crisis.

Policymakers usually work on reducing the impact of an unstable economy and move it onto the path of recovery. Some techniques used by policymakers include creating new job opportunities, controlling inflation, and stabilizing its currency’s exchange rate. Financing should remain flowing for business start ups and growth plans as a way of injecting money back into the economy. Inflation must be controlled because high inflation discourages international investors to purchase products or securities, since they are more expensive than before. The overall goal should be to create consumer confidence, encourage investment, and stimulate business growth.

The International Monetary Fund (IMF) was created in order to advise member countries on creating economic and financial policies to strengthen economic stability. It also provides statistics and information about the current economies of countries around the world. The IMF measures data such as gross domestic product (GDP) growth, inflation, unemployment, payment balances, exports, imports, external debt, capital flows, and commodity prices as variables to stability. It is the main source for data and statistics on the current state of most countries.

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Discussion Comments
By ovaisrizvi — On Jan 30, 2020

When an economy is in danger to go into a depression or recession, it is suggested that government may increase the minimum wage act. They may increase 10% of the wage of all the employee which should affect all the govt and private employees. It will hurt the employers to pay more 10% but it will be injected into the economy of a country, and people may be able to purchase the produce or product which they could not do in the past.

The recession decrease the produce of the large scale, but the injected money will balance it.

By SarahSon — On Apr 20, 2012

I don't keep a real close eye on the global economy, but I know it has affected my retirement investments.

When there is a lot of economic instability, people are reluctant to invest in the stock market. A few of my investments were in foreign funds, and they didn't seem to perform any better than the others.

Because my funds took such a big hit, I find that I am not nearly as interested in investing money in the markets. I know I am not the only person this has happened to, and imagine there are many people with the same sentiment as I have.

From a local standpoint, my husband works in construction and our state was to receive millions of dollars to build and repair bridges and roads.

This was to provide more jobs and put more money back into our state. That all sounds like a good plan, but as of yet, none of that money has been received. It makes me wonder how long that will take, or if it will happen at all.

By myharley — On Apr 19, 2012

This article mentioned low unemployment as a sign of economic stability. For the most part, I haven't seen much of a decrease in the unemployment rate in the last several years.

It seems to be doing the opposite and keeps going higher. Hopefully this is one of those economic trends that will begin to see some improvement.

I know many situations where people lost their jobs and it has been a real struggle for them. If they were able to find a job, it paid much less than what they were making before.

I can understand why there is such a strong connection between a low unemployment rate and the economic strength of a country.

When people are gainfully employed, it is much easier for them to invest back into the economy.

This ends up being a win-win situation for everyone.

By andee — On Apr 19, 2012
@honeybees - I think the housing market is a good example of the current economic instability.

Most people who own their own home, or are in the process of making payments on one, know how much less their home is worth than it was a few years ago.

I think it will take a very long time for our home to be worth what it was when we bought it. Unless you have to sell, it seems like the best option is to hold on to it.

Another frustrating thing about that is although the value of our home has decreased, our property taxes have increased. This makes no sense to me.

When this happens, the taxpayers are the ones who are putting money back into the economy. When this is at the expense of their home also losing value, it doesn't do much to help consumer confidence.

By honeybees — On Apr 18, 2012

There seem to be a number of economic issues that are having an effect on our economy today. I wonder how long it is going to take for the housing market to improve.

I know a few people who were able to benefit from the housing incentive that @Starjo referred to. If you weren't a first time home buyer though, you were out of luck.

Now the qualifications to own a home are so high, that I am afraid many young people will never be able to own their own home.

Not only do they need excellent credit, but also a large down payment. This is the part I think many will have trouble coming up with.

While there have been several things done trying to inject money back into the economy, I wonder if they have accomplished what they were hoping for.

By StarJo — On Apr 17, 2012

We all feel better during periods of economic stability. For one thing, we don't have news anchors putting thoughts of doom and a bleak future in our heads. We are not scared to invest in stocks or to buy a new house.

However, citizens do get some benefits during times of an unstable economy. I was able to get an $8,000 credit on the new house I bought, simply because the housing market was suffering and the government wanted to help boost it and the general economy.

Since this was the first house I ever bought, I qualified for the credit. It really helped out a lot, and though I'm sure we all would prefer a stable economy over a government credit, times of instability are not without their perks.

By orangey03 — On Apr 17, 2012

I remember getting a big check from the government back in 2009. The economy had been shaken to the core, and in a desperate attempt to get consumer spending back up, the government issued a stimulus package.

My parents got even more money than I did, because married couples were given about twice as much. The government hoped that everyone would go out and put that money back into the economy instead of saving it.

I'm sure I made them happy, because I used mine to buy a flat screen TV. I had to use all of the check, plus about $100 of my own money.

I think issuing checks to citizens was a good attempt, but I don't think it had quite the effect the government was hoping for. People stayed broke for years after that, and where there was no money to spend, there could be no economic stability.

By cloudel — On Apr 16, 2012
@shell4life – That is so true. The main reason no one can afford a fuel efficient vehicle is because so many of us have either had our work hours cut or are out of a job totally.

When the economy becomes unstable, everyone starts cutting back. Businesses that have been doing well for years suddenly have to let employees go, and no one is really hiring when the economy is unstable.

My best friend had to make up for her loss of money when her hours got trimmed back by moving into a small apartment near her workplace. She rode her bike to work every day, and she only used her vehicle when she had to go get groceries. She saved a ton on gas, and it was a good way of dealing with an unstable economy.

By shell4life — On Apr 16, 2012

I think that after gas prices have been substantially higher than normal for a period of time, the economy inevitably becomes unstable. Everyone depends on gas, whether they drive their own vehicles or take a cab or bus to work.

Even those who might live close enough to work to walk to it are indirectly affected by gas prices, because the higher they get, the more the price of food rises. Food and gas are so essential to our existence that the economy cannot remain stable in a time like this.

People who can afford to buy a vehicle with exceptional gas mileage are lucky. Most of us are stuck with our old gas guzzlers, and even though a newer model might eventually pay for itself in savings on gas, we are too broke to buy one because of how unstable the economy is.

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