The paper 'Economic Stability' is a wonderful example of a Macro and Microeconomics Assignment. Economic stability is the absence of extreme fluctuations in the macroeconomy. A stable economy experiences constant growth and reduced inflation. Having an economically stable economy entails improved efficiencies, increased productivity, as well as low unemployment. An unstable economy, on the other hand, entails long period of crisis or recession, rising inflation, and instability in currency exchange rates. An unstable economy leads to a decrease in the confidence of consumers, diminutive economic growth, and declined international investments.
This essay focuses on the ways in which economic stability influences global or international trade and compares two ASEAN countries' economic stability and how they affect foreign direct investment. Economic stability is not only an issue of national interest but also a global concern. As depicted in the recent occurrences in the globe’ s financial markets, countries have become more interlinked. Issues in one apparently independent sector can cause problems in other areas, besides causing spillovers across borders. Thus, when it comes to economic or financial stability, no country is an ‘ island’ . The development of commerce and international growth has allowed one country’ s economic stability to influence the stability of other economies.
When the economy of a country becomes unstable, the country experiences a huge reduction in global investment and spending. Foreign investors also lose their money if they have investments in an unstable economy. For instance, if an investor in Indonesia developed real estate business in Greece before the credit crunch of 2008, the value of the investment may have fallen to unrecoverable lows even after the recovery of Greece economy. How economic stability affects international trade Economic stability has a great influence on international trade in a number of ways.
When countries have a stable economy, they are more likely to have more foreign investment than countries experiencing instability in their economies. Economic instability may influence investors to withdraw their investments from the unstable economy as they are afraid of suffering loss or crumbling. In the 2008 global economic crisis, the United States was a large hit. This resulted in several multinational companies operating there such as General Motors and a number of banks such as the Imperial Bank closing out their business.
Consequently, if a country has economic stability, the business environment is therefore viable and investors are likely to flock for opportunities in such a country. Economic stability creates the necessary frameworks and infrastructure that makes businesses successful. Therefore, economic stability influences whether a country does business with others. A stable economy boosts consumer confidence. When a country has a stable economy, more consumers from the international market are more likely to purchase products or securities in such a country.
This is attributed to the stability of the currency that maintains prices at a competitive range as compared to countries with the same products but with an unstable economy. When the economy becomes unstable, products become extremely expensive due to high and unstable exchange rates of the currency of the affected country. This discourages investors from trading on securities or products in such countries. Thus a country with an unstable economy is likely to experience decreased exports to other countries as their goods become expensive due to shilling volatility. For instance, during the economic crisis of 2008, several countries in Europe experienced a significant drop in tourists’ volume.
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