Government Economy Policies USA has one of the most technologically advanced and largest economies in the world. Its GDP is near 12.373 trillion dollars. US economy is capitalistic and free-market oriented where the vast majority of microeconomic decisions are made by In this capitalistic, free market-oriented mixed economy, corporations and other corporations and other private firms. Business firms are under less control comparing to other countries because government prefer to minimize its role in domestic economy Since the early 1980s, the United States has transformed from being the world’s largest creditor to having a substantial current account deficit and a national debt of unprecedented size relative to national GDP since World War II. (Economy of the United States) In this paper I would like to compile a list of various ways the government interacts with the economy. My decision whether or not the government policies help or hinder the economy, in general and in specific areas will be rest upon my research. I hope that this paper will be constructive and informative. In US consumers and producers form the economy, while government interacts mainly with four areas. Government interaction with economy starts in 1900s, till this it was nearly free market economy.
It seems to that the most important is that government tries to guide the overall pace of economic activity. It attempts to maintain steady growth (which is rather positive), high level of employment and price stability. So the question is if government has so noble goal why we are talking about hinders? Maybe it is due to the tools used for achieving those goals. What spheres of economy interacts closely with government? By adjusting spending and tax rates (fiscal policy) or managing the money supply and controlling the use of credit (monetary policy), it can slow down or speed up the economy’s rate of growthin the process, affecting the level of prices and employment. (Economy of the United States) The need to control fiscal policy and monetary policy was formed thanks to the Great Depression in 1930 when slow economic growth and high unemployment caused great economic crisis. When the danger of recession appeared most serious, government sought to strengthen the economy by spending heavily itself or cutting taxes so that consumers would spend more, and by fostering rapid growth in the money supply, which also encouraged more spending. (Economy of the United States) Tools of interaction with economy changed between 1960s and 1990s. Interaction still falls into few categories.
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Federal government interacts mostly with private enterprise in numerous ways. The main goal of such interaction is prevention monopolies from raising prices beyond reasonable measure. But some industries such as airlines successfully fight with overpricing by themselves. Antitrust law was used as a tool against markets force weaknesses and was used by government and sometimes by private companies for prohibiting practices or mergers, which could unduly limit competition. Some interactions with economy took place to achieve social goals (protecting public health and healthy environment) The U.S. Food and Drug Administration tightly regulates what drugs may reach the market, for example; the Occupational Safety and Health Administration protects workers from hazards they may encounter in their jobs; and the Environmental Protection Agency seeks to control water and air pollution. (Economy of the United States) So government interacts with the economy in one way or another and tries to make things better.
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But we must consider that the greater the degree to which the government intrudes in the economy, the less individuals are free to engage in their own economic activities. (Reshaping Government) The higher the rate of government consumption as a percentage of gross domestic product, the higher becomes rate of hinder it causes to economy Economists are sure that active government interactions with economy will lead to no good. At some point government spending becomes a burden either because government becomes too large or because outlays are misallocated. In such cases, the cost of government exceeds the benefit. (The Impact of Government Spending on Economic Growth) If we examine hinders, which can be caused by government interactions we will see that there are still many negative points. Every dollar government spends means one less dollar in productive sector of economy and the leads to the displacing of private sector activity.
Before government spend money they need to be taken from someone pocket. It means higher taxes and leads to discouraging both consumers and productive behavior. Daniel J. Mitchell, Ph.D. states Borrowing consumes capital that otherwise would be available for private investment and, in extreme cases, may lead to higher interest rates. Inflation debases a nations currency, causing widespread economic distortion. (The Impact of Government Spending on Economic Growth) We must also consider that fact that some of the government interactions lead to subsidizing economically undesirable decisions.
Many of governmental programs encourage people for choosing leisure over work. J. Mitchell, PhD emphasizes, Flood insurance programs encourage construction in flood plains. These are all examples of government programs that reduce economic growth and diminish national output because they promote misallocation or underutilization of resources. Government interactions with economy leads to the innovation hinders. To many people it is more advantageous to entity in private sector and search there for the new ways and opportunities to gain money other then invent something.
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Korea What distinguishing factors help explain the rapid economic growth experienced by the South Korean economy over the past four decades? As the South Korean economy has reached a more mature stage of its economic growth, what are the evolving challenges it has had to face? What are its prospects of continued economic success in the increasingly globalized world economy? The rapid growth and ...
As we can see government interactions with economy, no matter how noble goals such interactions have, hinder the economy. But thats happen because government interactions are too much nimble. I think that governmental interactions are necessary for forming and maintaining stable economy but they have to be measured in some way. The question stays open who or what can constrain government thirst for interactions?
Bibliography:
Economy of the United States, February 18, 2006. J. Mitchell, PhD, The Impact of Government Spending on Economic Growth, March 15, 2005. Reshaping Government, Economic Reform Today, Number 1, 1997.
Mark Brnovich, Let’s Dodge This Bullet, East Valley Tribune October 17, 2004. .
