The Role of Government in Economy - 1216 Words

Nowadays, there are debates on how far government should interfere with the economy. Government has played an impact on the economy with the purpose to maximize the well-being of society. What governments generally do is to assure the economy grows at a steady pace, increase level of employment and stabilize the price level. However, whether government should take active policies to interfere with economy or just let it grow naturally has raised widely discussion. This essay discusses the role of government by analyzing both thought of Keynes and Friedman and then prove the effectiveness of Friedman’s theory with historical examples. Firstly, the Great Depression of the 1930s has helped prove the importance of government’s intervention†¦show more content†¦As Issing (2010 p 1) says in his article, after the Great Depression, there was dominant belief on the Keynesian theory. However, the lessons obtained from the stagflation of 1970s, associated with Keynesian policies, are that unrestrained and ineffectively planned intervention by government could give rise to market failure and adverse economic outcome (Aikins, 2009, p 405). The weakness of Keynesian theory was supported by Callaghan who stated that cutting taxes and boostingShow MoreRelatedThe Role of the Government in the Economy Essay839 Words   |  4 PagesThe appropriate role of government in the economy consists of six major functions of interventions in the markets economy. Governments provide the legal and social framework, maintain competition, provide public goods and services, national defense, income and social welfare, correct f or externalities, and stabilize the economy. The government also provides polices that help support the functioning of markets and policies to correct situations when the market fails. 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