What Is Macro Economic Stability And How It Can Be Achieved?

Macroeconomics stability will mean stability with respect to growth, inflation, unemployment rate etc. in the host country. These affect national economic policies and also the actions government takes which may involve changing taxation levels etc. Any multinational corporation is set up after studying the macroeconomics of the host country. Any change in the macroeconomics of a country will affect a multinational corporation. For example, if the level of taxation changes, it will directly impact the net profits over a period of time. Similarly if growth of a country slows down, it will reflect on the growth of a corporation. For a multinational corporation to grow and thrive, the macroeconomics of the host country should be stable. The Host country is like an anchor which gives a corporation the stability at its roots. When the corporation spreads its wings over developing nations, it is a known factor that the macroeconomics in a developing nation will be volatile. Hence stability of Macroeconomics in the host country is extremely important for a multinational corporation.

Attainment of long-term stability in the inflation rate, reduction, reduction in the interest rate and increase in asset is called macro-economic stability. These variables, which create unsteadiness in the economy, are the product of "Deficit financing". By deficit financing, we mean to fill the gap between the expenses and income receipt of the Economy. There are two basic tools, which are utilized in term of Deficit financing.

Monetary tools: As is understandable from the word monetary, this tool has every thing to do with money. Whence there is a shortage of or a gap between the expenses and income, an increase in the amount of currency, is sought by the Federal Government. This increase does fill the gap but it creates price rises in the country.

Fiscal tools: Fiscal tools are usually called government borrowings, either through outside sources or inside sources. This leads to rise in the interest rate (whence government is taking loan. There will be very little amount left for the private investors thus decline in supply would lead to raise in demand and resultant increase in interest rate) crowding out, discarding behavior of the investors not to invest due to high rate of interest. Thus, lack-financing results in the above-mentioned stalemate a country will achieve macro economic stability.