Mulat, Teshome(Dr.)Birhanu, Dawit2021-10-052023-11-042021-10-052023-11-042005-06http://etd.aau.edu.et/handle/123456789/28042The study uses the concepts of the welfare cost from inflation, and armey curves popularized by Martin Bailey and Richard armey'; respectively to show that fiscal policy instrument can serve a function further than progressively reducing fiscal deficits. In the absence of the abundance of financial institutions monetary policy measures, as tools of short-term economic stabilization, can be impotent. The study shows that with fiscal policy measures primarily aimed at progressively lowering budget deficits, the policy choices for short term macroeconomic stabilization have seen LDCs rely, in flexibly, on monetary policy measures that have failed to pay any' dividends. The study also shows that the potential for fiscal adjustment measures can be exhausted pretty quickly and an economy could slump back in to a corner solution on the policy space 9wehre fiscal policy measures are once only good for reducing fiscal deficits ). The study indicates that less developed economies that constantly put their faith on [short-term policy] measures that require intricate institutional development should realize that those set of measures are dominated by policy measures that do not require well structured institutions. Nevertheless, it cautions d1e enthusiasm witl1 which fiscal policy options are reintroduced into the policy choice scene should not veil the need for immediate institutional improvement.enEthiopian ExperienceWelfare Costs of ModerateThesis