Running head: ROLE OF GOVERNMENT IN THE ECONOMY 2
The government is actively involved in economy regulation and stabilisation.
Measures that the government has put in place to regulate the economy have rendered
effective results (Maxwell, Lyon, & Hackett, (2000). The above measures that the
government has put in place to regulate the economy are discussed as follows;
In consideration to private enterprises, the government controls and regulates their
actions to ensure that the enterprises serve the expected interests of the people as a whole and
the country concerned. Government regulation is usually considered necessary mostly in
areas where a private enterprise has been granted a monopoly, as with the rail roads.
Government has set up public policy which permits private companies to make reasonable
profits; public policy also limits the ability of private companies to raise prices of their
commodities and services beyond reasonable expectations. This is unfair because the public
depends on their services. For example, in situations whereby food and drug organisations
requires quality standards of food and drug substances, in other manufacturing industries, the
government sets quality guidelines to ensure fair competition without using direct control
(Qu, & Ennew, (2005).
The government uses taxation of various commodities and services to create social or
economic benefits that presumably are not expected to occur naturally in a pure market
economy. According to a research done by Institute for Research on the Economy of
Taxation, benefits of taxation to the economy of a given country are real. Taxation is useful
in the prevention of inflation in any given country. Inflation has negative impacts to the
economy in that it will lead to the decline of an economy (Maxwell, Lyon, & Hackett, (2000).
Government regulation, for example, the regulation of drugs may prevent the
introduction of substances with harmful side effects and may also lead to a delay in the
release of lifesaving products in the market. This leads to both positive and negative Impacts