Economists often differ in their opinion about the type of market failure and the corrective measures required to resolve it. Today, we’re going to take a look at how the government plays a role in the economy. The Role of Government in a Liberal Market Economy: A Double-Edge Sword: 10.4018/978-1-5225-4177-6.ch005: This essay is a critical assessment of the market failure theory and public choice theory. Also, as a result of the reduced government role in the economy there was not a lot of regulations. Providing the economy with a legal structure: This is the first and most important function a government should provide and without it an economy may collapse. In fact only 1.5 of the 120 million Americans at the time were investors. The United States has a free market economy but with a notable amount of government intervention, therefore it has a mixed economy. Government's economic role in a market economy, in summary, is three-fold. When this failure occurred investors were not the only people hurt. Most government policies also redistribute income. Share. Although the government does have jurisdiction over the activities that take place in a mixed economy, the amount of control the government has is comparably less than in a socialist economy, where most of, if not all of, the market is controlled by the government. Public trust in the ability of markets to deliver efficiency and stability has been challenged. Role of Government, Free Market Economy, and Attitudes Toward Public Spending and Taxation; Role of Government, Free Market Economy, and Attitudes Toward Public Spending and Taxation. When the U.S. government issues bonds, it is essentially taking out a loan from the people who buy them. The consensus in the economic literature, with regard to the role of the government in a market economy, calls upon the government to perform five functions. Characteristic of a Market Economy Ms. Ross Slideshare uses cookies to improve functionality and performance, and to provide you with relevant advertising. The role of the government in the economy 1. Context Recent developments in financial markets and the economic downturn have cast a new light on Government’s role in markets. The two are not mutually exclusive. For instance, the government may allow a monopoly to operate in a market or industry with little competition, such as in utility services, but limit the company’s freedom to increase prices to avoid hurting consumers who would have no recourse. Finally, Section 5 contains a few concluding remarks. The appropriate role of government in the economy consists of six major functions of interventions in the markets economy. Name: University: Tutor: Course: Date: The Role of Government in a “Free Market Economy” Free markets are evolutionary and encompass economic, social and political organizations. Joint Ventures. These functions are: 1. STABILISATION ROLE: The government intervenes in the market to ensure there is steady growth. Toward that end, the U.S. government regulates certain activities in the market. The role of government in a market economy deals with problem associated with market failure. It concerns the use of budget deficits or surpluses to add to or subtract from aggregate demand in the economy, with the intention of influencing the level of output and unemployment and the rate of inflation in the economy. Start studying Role of a Government in a Market Economy. The role of the government is to ensure basic law and order, through ensuring the rule of law. The proper role of government in a capitalist economic system has been hotly debated for centuries. In summary, is three-fold it would “open up to the outside world” benefits... Make markets more competitive stability has been hotly debated for centuries allocation of goods and service by a free economy. 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