Instability of the economy is bad for the growth of a country. As a result of this, entrepreneurs are faced with uncertainly and therefore, lose confidence to make any investment. Hence income and employment of a country go down. The policy makers are unable to put into effect their economic policies. Thus, it is necessary to control instability for growth and development of the country.

Generally speaking a capitalist economy grows through fluctuations. If we take certain measures to control the wild fluctuations of the economy and bring them under control or, in other words, if we allow only mild fluctuations to take place, that will be the economic stabilization in a country.

Stabilization does not mean the freezing of an economy so as to brush away all fluctuations. This tendency would be highly dangerous. Mild fluctuations have got to be allowed so that the growth rate of economy can be maintained. The most appropriate level to stabilize the economy is usually the full employment level.

Prof. Lee has defined economic stabilization as "economic stabilization exits when fluctuations in the economy do not carry resource utilization beyond a range of 94%- 97% of full employment and prices are held at comparatively stable level.”