Role Of Government In Regulating The Economy

Running head: ROLE OF GOVERNMENT IN THE ECONOMY 1

Role of Government in regulating the economy;

Name;

Institution;

Course;

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

Running head: ROLE OF GOVERNMENT IN THE ECONOMY 3

of government regulation to a country’s economy. However, the prevention of introduction of

harmful substances into the economy promotes the economy; it also inhibits the production of

the lifesaving products which will promote the economy. Here the government should not

support regulating the drugs to allow lifesaving products reach the market (Qu, & Ennew,

(2005).

The government imposes tariffs on imports. This leads to a reduced number of

imports hence promoting the locally produced products. Tariffs are useful for a stable

economy; tariffs also increase government revenues which are in turn useful to the economy

of a country. Tariffs boost the local good manufacturers of a country who now face reduced

competition in their home market. The reduced competition in their home market leads to an

increase in price of the concerned commodity and service, this leads to the rise in the sales of

domestic producers. The increase in production and price causes domestic producers to hire

more workers which in turn makes consumer spending to rise. Tariffs hence lead to a stable

economy of a country and thus it’s suitable for the government to use them for a good

economy (Vogel, (2009).

The government also uses low taxation on locally produced products to promote their

local manufacturers. This is an act of regulation since through high taxation of imports; the

local producers get the chance to sell more than their foreign counterparts (Rauch, &

Schleicher, (2015). Similar to the use of tariffs, low taxation on locally produced products

leads to a stable economy, it also leads to creation of job opportunities to the unemployed

personnel. When job opportunities are high, the production of a country is high hence

increasing the amount of income earned by the local producers. Here the government tends to

play a big role in regulating foreign products and promoting their own products hence leading

to a growth in the economy of the country concerned (Rauch, & Schleicher, (2015).

Running head: ROLE OF GOVERNMENT IN THE ECONOMY 4

Government uses Deregulation to promote its economy. Deregulation is the relaxing

of rules and regulations which have been imposed on an industry or a business. Deregulation

mostly applies in financial institutions which are directly involved in the finances of a

country (Haufler, (2013). This leads to a higher rate of production by the local producers and

promotes the working rate of customers hence improving a countries economy. Through

deregulation, the government is assumed to have regulated imports which at some extend

lower the country’s economy. Imports slow down the rate of production and hiring and hence

inhibiting the GDP growth. Through deregulation, the government’s aim of regulating the

economy is achieved (Haufler, (2013).

The Government also uses Tax Cuts and Rebates which are designed to ensure that

more of the money or income goes back into the pockets of the consumers. A larger portion

of that money is spent by the consumers at various businesses which tend to increase the

businesses’ revenues, cash flows and profits (Haufler, (2013). When consumers have more

money, this means that their businesses have the resources to procure capital, grow, expand

and improve technology. All this actions are aimed at increasing productivity which in turn

grows the economy. Tax Cuts and Rebates allow customers to stimulate the economy

themselves through imbuing the economy with more money. Through this the government

achieves a stable economy (Haufler, (2013).

Running head: ROLE OF GOVERNMENT IN THE ECONOMY 5

References.

Qu, & Ennew, (2005). Developing a market orientation in a transitional economy: The role of

government regulation and ownership structure. Journal of Public Policy &

Marketing, 24(1), 82-89.

Maxwell, Lyon, & Hackett, (2000). Self-regulation and social welfare: The

political economy of corporate environmentalism. The Journal of Law and

Economics, 43(2), 583-618.

Haufler, (2013). A public role for the private sector: Industry self-regulation in a global

economy. Carnegie Endowment.

Vogel, (2009). Trading up: Consumer and environmental regulation in a global economy.

Harvard University Press.

Rauch, & Schleicher, (2015). Like uber, but for local government law: The future of

local regulation of the sharing economy. Ohio St. LJ, 76, 901.

Running head: ROLE OF GOVERNMENT IN THE ECONOMY 6

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