Economic Stabilization Theory

Economic Stabilization Theory suggests that governments and policymakers actively manage economic fluctuations—like inflation, unemployment, and recession—by using tools such as adjusting interest rates, changing taxes, or increasing public spending. The goal is to promote steady economic growth, control inflation, and reduce unemployment. Essentially, it views the economy as needing periodic adjustments to stay balanced, similar to steering a vehicle to avoid swerving too much. These interventions aim to smooth out boom and bust cycles, ensuring a stable environment for businesses and individuals to thrive.