The Role of Government
The Role of Government
The Role of Government
Chapter 24
Factors that
influence the
role of
government
Role of a
government
The functions of
government at local
and national levels
The government as a producer
https://www.london.edu/think/turning-national-champions-into-global-bran
ds
Natural Monopolies:
Natural monopolies, may be run by the government to
prevent consumers being exploited by a private sector firm charging
a high price
Cater to the high demand/output
The Examples: railways, electricity, water etc.
government as Essential Products:
a producer Most governments produce at least some goods and services that
they think are essential.
affordable housing to rent.
education
health care
Demand
The government tries to control the aggregate demand through its demand-side
policies. They do it by using a number of policy instruments. These are :
Total public expenditure – Increasing public expenditure can boost total demand
and therefore stimulate higher output. Public Expenditure can be as follows:
Capital expenditure – A non-recurring expenditure which is incurred on building
durable assets (multipurpose river projects, highways, steel plants etc.)
Current/revenue/consumption expenditure – Expenditure which is incurred year after
year. (police, judiciary, public health, education etc.)
Demand-side Transfer payments - a payment made in which no goods or services are being paid for,
such as a benefit payment or subsidy. (old-age pensions, unemployment allowance,
policies sickness benefits, interest on public debt during a year etc.)
The overall taxation policy –
Consumers - the amount consumers have to spend on goods and services depends on
their disposable income (income after deduction of income tax).
Businesses – taxes on profits will effect the amount of money firms have to invest in
new businesses and their demand for labour.
The rate of interest – as interest rates rise consumers may save more and/or
borrow less to spend on goods and services. This may also encourage investments
from overseas. As interest rates fall the firms may borrow more to invest.
Aggregate supply is the total output of producers in an economy.
Supply-side policies aim to boost the aggregate supply of goods and
services in the economy. This results in:
Aggregate
Economic growth
Increase in employment
Supply
Increase in exports
Reduce inflationary pressure
& These policies include:
Supply-side Specific public expenditure such as subsidies
Changes to individual taxes, such as reducing the taxes on wages
policies and profits to increase reward from work and enterprise
New regulations and reforms for example introducing legislation to
outlaw unfair trade practices.
Redistribution of income
Government aims at redistributing incomes between rich and poor
to lower down unequal distribution of wealth. The government
meets this objective through its taxing and spending activities.
Aims Of Rich are taxed more
Government The money collected is spent on the uplifting the poor