Macroeconomic Policy

Stabilisation Policy

The economy is affected by booms and slumps of the business cycle and it is the governments role to stabilise the peaks and troughs of economic activity.

• Boom/Recovery - occurs when output is growing, unemployment is falling and incomes are rising.
• Slump/Recession - occurs when output is falling, unemployment is rising and incomes are also falling.

There are four main objectives of the stabilisation policy:

• stable prices.
• balance of payments.
• full employment.
• steady economic growth.

Stable prices and balance of payments are closely linked as they are important for a…