Glen Edwards 201102728|
What is Stabilization Policy?3
Keynesian vs. Classical4
Stabilization in South Africa5
In an era where growth and stability in the economy are at the forefront of economic discussions, the economic policies and principles that are utilized in keeping with a stable economy must be taken very seriously. The way in which the governments of the world manage their income and expenditure is therefore of the utmost importance. The task of managing money is what stabilization policies are in a nutshell. The two schools of thought, Classical and Keynesian, view these stabilization policies differently and the author will attempt to discern whether or not either of them view stabilization policy as worthwhile. Additionally the author will analyze the stabilization policy efforts within the South African economy in recent years. What is Stabilization Policy?
"Stabilization policy is the attempt to reduce fluctuations in income, employment and the price level, stabilizing national income at its full-employment level, if possible." (Lipsey, 1993:659). This can be done through a governments fiscal or monetary policy, or both. As the author understands it, fiscal policy refer to those policies of the government that affect the tax rates, interest rates and expenditure, all used and controlled in an effort to control the economy. Simply put, a reduction in tax rates and/or an increase in government purchases (expansionary fiscal policy) causes the government's budget deficit to increase, or its budget surplus to decrease, while conversely, a decrease in government expenditures and/or an increase in taxes (Contractionary fiscal policy) will cause the government's budget deficit to decrease, or its budget surplus to increase. (Stabilization Policies, 2000) "Monetary Policy is the deliberate control of the...