Government In The Economy Essay Examples
Government is the strongest agent among all the agents in an economy with its fiscal and regulation power. In the capitalist economies, the government intervention is not appreciated because the intervention to the economy might cause inefficiency. However, the capitalist market mechanism might create inefficiency that might require intervention. Thus, the government intervention to the markets is not desired but sometimes necessary.
The economy management consists of two parts in almost every economy: monetary policy and fiscal policies. Central banks are responsible for developing monetary policies to respond the changes in the money markets while governments can develop fiscal policies to create responses to the disorders.
Central banks mainly work protecting the value of national currencies and their main priority is targeting inflation. Central banks are independent of politics. Thus, central banks mainly observe price level in their economy, and they aim at keeping the inflation rate below a targeted level.
Governments develop the fiscal policies to regulate the markets and redistribution of the markets. Governments might deal with overcoming the irregularities in the markets, or they might develop their fiscal policies on their political approach. Thus, fiscal policies might not be rational all the time.
Fiscal policies and monetary policy might be an efficient tool to intervene the markets to overcome the irregularities and the disorders in the national markets. One cannot claim one of them is more efficient than the other one. The economic history of almost every country indicates us that sometimes one policy might be relatively more efficient and sometimes, the economy managements might use both simultaneously. Especially, the experiences of stagflation in the economies have proved us that the economy management might need to use monetary and fiscal policies at the same time.
Amacher, Ryan C, and Jennifer Pate. Principles of Macroeconomics. San Diego, CA: Bridgepoint Education, 2012. Print.
Mankiw, N. Gregory. Macroeconomics. New York: Worth Publishers, 2007. Print.
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