ABSTRACT
A successful economy is one which has at least two main features. First, its actual real output does not fluctuate much from natural real output.1 Second, its natural real output grows at a rapid, but steady pace. While the determination of the level and the rate of growth of natural real output is the focus of growth theory, the determination of actual real output relative to natural real output is the concern of stabilisation theory, and together they form the subject matter of macroeconomics. Implicit in macroeconomic theories are questions about the role of economic policies in growth and stabilisation (Branson, 1989). The two main macroeconomic instruments are fiscal policy and monetary policy. This book provides a survey of issues pertaining to the role of monetary and financial policies in growth and stabilisation in developing countries. As pointed out by Drake (1980), the earlier literature defined finance narrowly to mean only government revenue and expenditure (public finance). However, for the purpose of this survey, finance is defined broadly to include all aspects of borrowing and lending which affect the money supply.
