![]() Given the continuous demand that governments maintain good economic growth and stable price levels, stabilization policy will remain a vital economic tool. Stabilization policy as a key fiscal policy will be needed even in the future. Some tax and expenditure programs change automatically with the level of economic activity. Like monetary policy, it can be used in an effort to close a recessionary or an inflationary gap. Generally, fiscal and monetary policies will continuously be used by central banks and governments of nations that keep the economy in a healthy state. Fiscal policythe use of government expenditures and taxes to influence the level of economic activityis the government counterpart to monetary policy. The policies can also be implemented to prevent surge or erratic deflation and inflationary movements in an economy. During financial shock or economic crisis, stabilization policy can be used as a recovery mechanism to get the economy stabilized. There are many instances where stabilization policies can be deployed or used by governments and central banks. Sudden changes in price can affect many aspects of an economy, including employment rate, money supply, and others. Central to the stabilization policy is the control of aggregate demand in an economy. ![]() John Maynard Keynes was the first economist who introduced the stabilization policy as a key process to stop or prevent erratic movements and surges in the prices of goods in an economy. Back to: ECONOMIC ANALYSIS & MONETARY POLICY The Roots of Stabilization Policy The term automatic stabilizer refers to a fiscal policy formulation that is designed as an immediate response to fluctuations in the economic activity of a certain country. As the name implies, stabilization policy helps to stabilize the economy through effective control of aggregate demand and supply in an economy, healthy price levels and adequate monitoring of trading in the economy. Stabilization policy is one of the economic policies that the government uses to maintain a good level of economic growth and prevent surges and erratic price movements in the economy. Several factors, including inflation and deflation upturn the economy and it is the duty of governments and central banks to keep the economy steady. Rises and falls occur in an economy, this might occur naturally or due to unnatural causes. Stabilization policy is often used as both an economic and discretionary policy that keeps the economy in a healthy state. Stabilization policy is a remedy that central banks or governments use to prevent irregular and unpredictable changes in price which affects the gross domestic product (GDP) and output of an economy. Given that the economy rises and falls, governments implement fiscal policy or monetary policy to keep the economy in check. Stabilization policy refers to a strategy implemented by the government of a nation to ensure that the economy is steady, this policy reduces price fluctuations in an economy through the implementation of certain measures and monitoring the economic cycle. Update Table of Contents What is a Stabilization Policy? The Roots of Stabilization Policy The Future of Stabilization Policy Academic Research on Stabilization Policy What is a Stabilization Policy?
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