Stabilization Policy aims to smooth business cycles and maintain macroeconomic stability. Goals: Smooth fluctuations, Reduce unemployment, Control inflation, Maintain growth. Demand-side policies: Fiscal (taxation, spending), Monetary (interest rates, money supply). Supply-side policies: Improve productivity, Technology, Infrastructure, Skills, Competition. Automatic stabilizers: Progressive taxes (fall during recession, rise during expansion), Unemployment benefits (rise in recession, fall in expansion), Welfare spending (increase needs during downturns). Discretionary policy: Active intervention by policymakers; stimulus packages during recession, austerity during boom. Time lags: Affect policy effectiveness; long lags reduce ability to fine-tune economy. Recognition lag: Identifying problem (3-6 months), Decision lag: Deciding policy (variable), Implementation lag: Executing policy (3-12 months), Effect lag: Impact on economy (6-18 months). Policy rules vs. discretion: Rules provide consistency but inflexible; discretion flexible but prone to errors. Coordination: Fiscal-monetary coordination important for effectiveness. Indian context: Recent stimulus in 2020 (COVID), RBI rate cuts, MGNREGA expansion for employment support. ICAI focus: Policy objectives, instruments, time lag implications. Exam tip: Time lags explain why policies sometimes worsen conditions; recognize lag constraints in policy design.