The Effects of Stabilization Policy on Investment Planning

by M. Clement



The article focuses on the effects of economic stabilization policy on investment planning in the U.S. Post-World War II efforts at economic stabilization have been moderately successful. A consequence of this modest achievement has been a more favorable climate for investment. The basic premise of the stabilization program is that government policies should be designed primarily to influence private spending. Under this conception of stabilization policy two broad avenues of action are open. First, the government can directly alter the way in which the economy responds during the cyclical disturbances. That is, structural adjustments can be induced by changing the institutional environment within which private decisions are made and carried out. The government countercyclical role has been to compensate for divergences between the full employment without inflation levels of aggregate demand and supply. Total supply has been determine almost exclusively by private enterprise. Reflecting an imperfect knowledge of the business cycle and a realistic assessment of political feasibility, stabilization authorities have used familiar monetary and fiscal methods to implement the gap-compensation strategy

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