Stabilisation Policy

Abstract

Stabilisation policy involves government intervention in the economy to offset the fluctuations that occur as a result of the trade cycle. All economies seem to have an in-built tendency to fluctuate between periods of boom and periods of recession. During the boom phase economic activity is buoyant so that output and employment are relatively low but the rate of inflation is relatively high and the current account tends to move into deficit. During the recession phase of the cycle economic activity is depressed so that employment, output and the rate of inflation are relatively low and the current account deficit falls or moves into surplus.