he role of the government in the economy

1. 1. Government intervention in the economy is inevitable because there are certain roles
and responsibilities that cannot be assumed by the private sector. A government is
supposed to guide and direct the pace of its country's economic activities. It is also
supposed to ensure that growth is steady, employment is at high levels, and that there is
price stability. Additionally, a government should adjust tax rates and spending, so that it
is able to speed up or slow down the economic growth rate.
2. 2. The visible hand of the government in the economy is manifested when it intervenes
to correct identified flaws in the market mechanism. Government displaces private
business by owning and operating certain enterprises (like the military); it regulates
business (like telephone companies); spends money on space exploration and scientific
research; imposes taxes on citizens and redistributes the proceeds to the people; and
expedites the use of fiscal and monetary power to promote economic growth and
development and to tame business cycles if necessary.
3. 3. Resource allocation means the economic management of natural resources. If there
are certain limited resources that need to be divided among individuals or projects, this is
where resource allocation comes into play. It is usually one of the forms of project
management. The allocation function is that part of government tax and expenditure
policy which is concerned with influencing the provision of goods and services in the
economy.
4. 4. This means creating conditions to promote competition among producers, as well as
the welfare of consumers. Regulation is a form of intervention on the part of the
government when the market is likely to fail.
5. 5. There are three views of the governments regulatory function. The Public Interest
Theory is the idea that regulation serves the public interest by restricting harmful
business activities. The Industry Interest Theory of Regulation asserts that regulation is
often tailored to serve the interests of regulated industries instead of those of the general
public. The Public Choice Approach, on the other hand, offers a final possible
explanation for regulatory behavior.
6. 6. It refers to the governments role in influencing the distribution of income among the
population. Through the power of taxation and expenditures, the government can affect
income distribution within the country. Because the government is essentially a self-
financed enterprise, it has to rely on taxes to be able to provide services.
7. 7. Experience has shown that a competitive market economy can achieve most of its
objectives. However, the market is not able to achieve all of its objectives. Therefore, the
government intervention in the processes of production and distribution is sometimes
necessary to correct certain inadequacies of the market system. This provide another
market-based justification for government activity.
8. 8. One of the areas of market Failure that government seeks to correct is known as
externalities, or unintended consequences of actions or policies. There are two kinds of
externalities: Spill- over costs and Spill-over benefits.
9. 9. Spill-over costs occur when individuals involuntary bear economic costs without
compensation. Positive externalities refer to spillover benefits. Spill-over benefits
 occur when individual receive economic benefits for which they have not paid.
Negative externalities refer to spillover cost
10. 10. A commodity or service that is provided without profit to all members of a society,
either by the government or a private individual or organization. The benefit or well-
being of the public. An Example of it is the protection provided by police, fire
departments, and the military, transportation, communication, health, insurance,
broadcasting, etc..
11. 11. A private good is the opposite of a public good. Examples of private goods include
food, airplane rides and cell phones. Private goods are less likely to experience the free
rider problem because a private good has to be purchased - it is not readily available for
free. A company's goal in producing a private good is to make a profit. Without the
incentive created by revenue, a company is unlikely to want to produce the good.
12. 12. Most government action is justified either to maintain competition or to correct
market failures. Government, however, has yet another role in the economy. It preserves
or guards the ethical values and beliefs of the society .