FISCAL STABILIZATION

For a modern state, restoration of high levels of employment with stable price level, realization of high rates of economic growth and maintenance of balance function of payments(BOP) are some of the basic functions to perform. They are known as stabilization of the state. Keynes is the first well known economist who advocated the role of state in economic field of life. He criticized classical view supply creates its own demand and floated the idea of permanent state- international policy to derive aggregate demand in the desired direction. If it is less than potential aggregate supply, there appears unemployment and recession and thus aggregate demand needs to be added up by government sources.