Functions of government in an economy

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Table of Contents

Introduction
Economic functions of the government
Conclusion
Reference List

Introduction

Government is defined as a particular group of people controlling a nation at a particular time and in which their manner of administration is structured while economy constitutes how government organizes labor, capital and land to produce goods and services in a country (Bennett, 1998) Government role in an economy is how the organizes factors of production to create goods and services in a country (Dollery, 2006).

Economic functions of the government

The government has several economic responsibilities to achieve to enhance prosperity of a country. First, the government provides legal and social frame in controlling business activities in the country. This is achieved through enactment of laws protects private ownership of property and enforcement of contracts regarding business transactions (Hill, 1982).

In addition, the government uses the police force to maintain law and order resulting to security of workers and firms within an area. They also inspect and maintain a system of standards for measuring and weighing products thus ensuring transparency in trade (Giersch, 1988). Secondly, the government maintains competition in the market by controlling monopoly and enacting antitrust laws that prevent businesses from merging into so as to control and set market prices (Bennett, 1998)

Similarly, the government plays a major role in redistribution of income in the country, since impersonal market that tends to favor given producers or traders, the government intervenes through progressive tax system thus reducing the disposable income on citizens who might have adopted high standards living due to high level of income (Giersch, 1988).

Secondly, the government redistributes income through market intervention by modifying the prices of goods and services that would have been higher when established through market forces of demand and supply (Hill, 1982). For example, the government could provide farmers with above market-prices of farm outputs to stabilize the market price and increase their income (Bennett, 1998)

In addition, the government puts mechanisms to cover spillover costs that entail the production or consumption of goods or services that are inflicted on individuals without the proper compensation such as environmental pollution that is likely to affect the lives of residents (Bennett, 1998)Moreover, the government ensures economic stability of a country by adjusting its spending and taxation or increasing spending on public goods thus maintaining strong economic value of the currency (Zeckhauser,1983).

Stabilization of the economy reduces inflation country thus controlling unemployment and price level as the government adjusts spending and tax rates to slow down or speed up economic growth rate (Giersch, 1988). The government then formulates a policy that emphasizes on supply of money and interest rates through the budget and provides goods and services which the private individuals are not willing to venture in or those threatening national security such as production of atomic bombs Dollery, 2006).

Conclusion

The government takes care of the needs beyond the reach of market forces of demand and supply through provision of services and enactment of rules and regulations that encourages investments in a country (Bennett, 1998).This leads to mass-production in the industrial sector leading to high economic growth and improved standard of living since many countries adopted liberal market economy (Dollery, 2006).

Reference List

Bennett.D. (1998).Multicultural states: rethinking difference and identity‎.Sidney :HarperCollins Publishers Australia

Dollery .B. (2006).Australian local government economics‎ Brian. Sidney: Macmillan Publishers

Fan. Q. (2009) “Innovation for development and the role of government” New York: St. Martin’s Publishers.

Giersch .H. (1988) “Reassessing the Role of Government in the Mixed Economy” New York: Oxford University press.

Hill.L. (1982) “Role of government in a market economy” New York: Oxford University press

Zeckhauser.A. (1983) “What Role for Government? Lessons from Policy Research” New Jersey: John Wiley and Sons.

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Functions of government in an economy

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