The intervention of the government whether to expand demand or reduce it constitutes the____________.

The correct answer is stabilisation function.

Key Points

• The government's intervention in the economy to expand or reduce demand is called a stabilization policy.
• This is done to prevent the economy from going into recession or experiencing high inflation.​

Additional Information

• Fiscal policy:
  • ​The government can change its spending and tax levels to stimulate or slow down the economy.
  • For example, during a recession, the government might increase spending on infrastructure projects or unemployment benefits.
  • This would put more money into the economy and help to boost demand.
• Monetary policy
  •  The government can change the interest rates that it charges banks to borrow money.
  • This can affect the amount of money that banks lend to businesses and consumers, which can in turn affect the level of economic activity.
  • For example, if the government wants to stimulate the economy, it might lower interest rates.
  • This would make it cheaper for businesses to borrow money, which would encourage them to invest and hire more workers.
• Stabilization: The act of stabilizing something, such as the economy.
  • Stabilization policy is a complex and controversial topic.
  • Some economists believe that the government should play a more active role in managing the economy, while others believe that the market should be allowed to operate freely.
  • Function: The purpose or role of something.