Economic Policy - Macroeconomic Stabilization Policy

Macroeconomic Stabilization Policy

Stabilization policy attempts to stimulate an economy out of recession or constrain the money supply to prevent excessive inflation.

• Fiscal policy, often tied to Keynesian economics, uses government spending and taxes to guide the economy.
  • Fiscal stance: The size of the deficit or surplus
  • Tax policy: The taxes used to collect government income.
  • Government spending on just about any area of government
• Monetary policy controls the value of currency by lowering the supply of money to control inflation and raising it to stimulate economic growth. It is concerned with the amount of money in circulation and, consequently, interest rates and inflation.
  • Interest rates, if set by the Government
  • Incomes policies and price controls that aim at imposing non-monetary controls on inflation
  • Reserve requirements which affect the money multiplier