Stabilization Economic The

Stabilization Economic The

Stabilization, Economic, the use of monetary, fiscal and other techniques to avoid deflation or marked inflation in the industrial nations of the western world. Since the end of the Second World War most of the government s of the western democracies have undertaken to maintain high and stable average levels of employment, and many to stabilize the value of their domestic currencies.

Income and employment in the industrial countries tend to fluctuate. A slight disturbance to the level of income or demand tends to become cumulative and so generates either a large fall in demand for the output of commodities and services and for the labour normally employed in producing them, or a sharp increase in demand which at full employment cannot be matched by an increase in output and therefore bids up prices and wages , causing inflation. The main influence in these processes in either direction is business men's views on the prospects for making profitable investments in machinery, buildings and stocks of goods and raw materials. If the initial change in income is downward they are apt to take a pessimistic view and reduce their purchase of investment goods. Demand for the outputs of the industries which produce machines and construct buildings declines. These industries lay off labour, reduce their demands for raw materials and cut back their purchases of machines. The workers who are now unemployed reduce their purchases and may default on hire-purchase payments, which in turn reduces the incomes of shopkeepers and finance companies. The interactions between falling incomes, investment and employment produce a vicious downward spiral which may generate heavy .unemploymentunless checked by Government action.

If from a position of full employment an initial upward push is given to money incomes, prices start to rise. In anticipation of further price increases, people buy early and increase their stocks so that inflation becomes cumulative unless checked.

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