Government & the Economy

The Government plays an indispensable role in the development of Economy of any country. Economical affairs such as collection of taxes and criterion as to who is legible to pay taxes, setting up interest rates levels, handling inflation, fluctuation in income or employment, etc are controlled and managed by the Government.

Based on the aims of a Government’s economic policies it performs four kinds of functions. The first function being development of services that the private organizations refuse to produce or are not granted permission to produce or at least not allowed to produce exclusively for any kind of reason. Such a public provision shall be to achieve instant benefits related to defense, law and order or investments that would yield profits in a due course of time such as laying roads. These productions can be of two types. The first one being production of services which are not to be sold but to be financed owing to mandatory levies. This strategy can be attributed to allocation of resources. However the Government ought to buy in the outputs produced by the private firms. Second is utilization of public corporations to sell the goods produced in the market. Such production organizations are entitled to adhere to policies that focus on accomplishment of certain objectives and not on profits.

The second function of the Government related to economical affairs is implementation of strategies that alter the structure of the private sector production which results in better allocation of resources instead of the results yielded by private market transactions.

The third function results in the implementation of Government’s intervention in the process of distributing the income of the private sector market to ensure certain extent of equity such as an assurance of minimum income even to those who don’t currently lend services to the market, e.g., pension for retired officials.

The fourth function is to maintain stable economic levels. This is done by utilizing methods that would help reduce fluctuations related to income. Reduce fluctuations in employment by creating more employment opportunities. The Government also monitors and controls general pricing of goods and services to maintain an economical balance.

Usually in countries with democratic governments, each year a budget is proposed which is presented to their Parliament along with information related to the finances of the Central Government and accounts of the previous years. The budget is approved if it complies with standards and if the Government assumes responsibility to make best use of the funds granted.

Questions:

• How many functions does the Government perform for economic development?
• What is the result of the second function of the Government?