Global Economic Stability

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Global economic stability

Compiled By:

gauravbhaglal

Sumit Singh


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INTRODUCTION

Economic stability refers to an absence of excessive fluctuations in the macroeconomymacroecon

omy . Aneconomy with fairly constant output growth and lowand stable inflation would be consideredeconomically stable

Unstable Economy : An economy with frequentlarge recessions , a pronounced business cycle , veryhigh or variable inflation , or frequent financial crises would be considered economically unstable
http://en.wikipedia.org/wiki/Macroeconomyhttp://en.wikipedia.org/wiki/Macroeconomyhttp://en.wikipedia.org/wiki/Macroeconomyhttp://en.wikipedia.org/wiki/GDPhttp://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Recessionhttp://en.wikipedia.org/wiki/Business_cyclehttp://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Financial_crisishttp://en.wikipedia.org/wiki/Financial_crisishttp://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Business_cyclehttp://en.wikipedia.org/wiki/Recessionhttp://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/GDPhttp://en.wikipedia.org/wiki/Macroeconomy


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WHY IT IS IMPORTANTAvoiding Economic & Financial Crisis

Avoiding large swings in economic activity, highinflation, and excessive volatility in exchange ratesand financial markets

Dynamic market economy

Countries are becoming ever more interconnected


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Factors impacting globaleconomic stability

Business cycleFinancial Crisis

Stability and Growth PactFiscal Policy

Monetary PolicyAutomatic Stabilizer


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BUSINESS/economic CYCLEEconomy-wide fluctuations in production or economic activity over several months or years

Fluctuations are often measured using the growthrate of real gross domestic product

Unemployment high Monetary & Fiscal Policysmoothing role

Mitigation - Govt. should increase the demand
http://en.wikipedia.org/wiki/Conjuncturehttp://en.wikipedia.org/wiki/Real_versus_nominal_value_(economics)http://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/Real_versus_nominal_value_(economics)http://en.wikipedia.org/wiki/Conjuncture


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ContExternal (exogenous) versus internal (endogenous)causes of the economic cycle

Credit/ debt cycle

Real business cycle theory

Politically based business cycle


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Financial crisisFinancial crisis includes:

Stock market crashesFinancial bubblesCurrency crisisBanking panicsMany recessions coincided with these panics


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Types of Financial crisis

Banking crisis

Speculative bubbles and crashes

International financial crisis

Wider economic crisis


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Stability and Growth PactThe Stability and Growth Pact (SGP) is anagreement by European Union member states relatedto their conduct of fiscal policy, to facilitate andmaintain Economic and Monetary Union of theEuropean Union

The pact was adopted so that fiscal discipline would be maintained and enforced in the EMU


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FISCAL POLICYFiscal policy was invented by John Maynard Keynesin the 1930s.Fiscal policy is the use of government spending andrevenue collection to influence the economy.The two main instruments of fiscal policy aregovernment spending and taxation.

The three possible stances of fiscal policy are:-1. Neutral Stance- Where G = T.


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2. Expansionary Fiscal Policy -Where G > T.

3. Contractionary Fiscal policy -Where G < T.


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MONETARY POLICYMonetary policy is the process by which thegovernment, central bank, or monetary authority of acountry controls:-

II. the supply of moneyIII. availability of moneyIV. cost of money or rate of interest

in order to attain a set of objectives oriented towardsthe growth and stability of the economy


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AUTOMATIC STABILIZER

Automatic Stabilizer work as a tool to dampenfluctuations in real GDP without any explicit policyaction by the government. It is a government

program that changes automatically depending onGDP and a persons income.For example:-

Induced Taxes Like Income Tax and CorporationTax.

In an economic boom tax revenue is higher and ina recession tax revenue lower .


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Transfer Payments Like unemployment andwelfare benefits.Government expenditure increases automatically inrecessions and decreases automatically in a boom.


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T H A N K

Y O U


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OPEN FOR DISCUSSION

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Global Economic Stability