What are government policies aimed at stabilizing the economy by eliminating output gaps called?

Government policies aimed at stabilizing the economy by addressing output gaps are referred to as stabilization policies. These policies are designed to manage economic fluctuations and maintain a stable level of economic activity, aiming for full employment and price stability. When the economy is operating below its potential (a negative output gap), stabilization policies may involve expansionary measures, such as increased government spending or lower interest rates, to stimulate demand. Conversely, if the economy is overheating (a positive output gap), these policies might include contractionary measures to cool off inflation.

Stabilization policies can be distinguished from other types of policies, such as structural policies, which focus on long-term adjustments and reforms in the economy. Normative policies are more concerned with value judgments and what the economy should be like rather than practical tools for stabilization. In summary, stabilization policies specifically target short-term economic fluctuations to promote a stable and growing economy.