Question

Economic policy makers are concerned with both economic growth and economic stabilization.  Explain the distinction between them.  Are different policies used for the two purposes?  Explain.

Answer 1

Economic growth is an increase in the the production of economic goods and services, compared from one period of time to another. It can be measured either in nominal terms or in real terms ( i.e. adjusted with the rate of inflation). In other words economic growth is the subsequent increase in the capacity of the economy to produce real goods and services. Generally aggregate economic growth is measured in terms of Gross National Product(GNP) and/or Gross Domestic Product(GDP). Normally an Increases in capital goods, labor force, technology, and human capital can all contribute to economic growth.

The term economic stabilisation expresses maintaining the monetary, taxation and revenues policies without a negative effect to the market economy and its operations. In such situation all the macro-economic indicators would be in a harmony with each other. Economic stabilisation is one of the main remedies to effectively control or eliminate the periodic trade cycles which plague capitalist economy.

Economic stabilisation policy is carried out generally to attain three main objectives, controlling or moderating cyclical fluctuations; encouraging and sustaining economic growth at full employment level; and maintaining the value of money through price stabilisation.

Though both of these are different things but are correlated with one another. First the process of growth must start and continue and than there must be stabilisation in the economy so that this process can continue without any difficulty. So the government can use similar types of policies for attaining both goals. The policies which may be used for both the goals are- Monetary policy, Fiscal policy or the Direct controls etc. Though the basic structure of the policies for both the aims are same but there is difference in the approach and hence changes are made accordingly.