Consumers and producers obviously make decisions that mold the economy, but there is a third major element to consider the role of government. Government has a powerful effect on the economy in at least four ways: Direct Services. The postal system, for example, is a federal system serving the entire nation, as is the large and complex military establishment. Conversely, the construction and maintenance of most highways is the responsibility of the individual states, and the public educational systems, despite a large funding role by the federal government, are primarily paid for by county or city governments. Police and fire protection and sanitation services are also the responsibilities of local government. Regulation and Control. The government regulates and controls private enterprise in many ways, for the purpose of assuring that business serves the best interests of the people as a whole. Regulation is necessary in areas where private enterprise is granted a monopoly, such as in telephone or electric service, or in other areas where there is limited competition, as with railroads or airlines. Public policy permits such companies to make a reasonable profit, but limits their ability to raise prices unfairly (as defined by the regulators), since the public depends on their services. Often control is exercised to protect the public, as for example, when the Food and Drug Administration bans harmful drugs, or requires standards of quality in food. In other industries, government sets guidelines to ensure fair competition without using direct control. Stabilization and Growth. Branches of government, including Congress and such entities as the Federal Reserve Board, attempt to control the extremes of boom and bust, of inflation and depression, by adjusting tax rates (including regulations pertaining to depreciation), the money supply, and the use of credit. They can also affect the economy through changes in the amount of public spending by the government itself. Direct Assistance. The government provides many kinds of help to businesses and individuals. For example, tariffs permit certain products to remain relatively free of foreign competition; imports are sometimes taxed so that American products are able to compete better with certain foreign goods. Government also provides aid to farmers by subsidizing prices they receive for their crops. In quite a different area, government supports individuals who cannot adequately care for themselves, by making grants to working parents with dependent children, by providing medical care for the aged and the indigent, and through social insurance programs to help the unemployed and retirees. Government also supplies relief for the poor and help for the disabled.
Consumers and producers obviously make decisions that mold the economy, but there is a third major element to consider the role of government. Government has a powerful effect on the economy in at least four ways:
Direct Services. The postal system, for example, is a federal system serving the entire nation, as is the large and complex military establishment. Conversely, the construction and maintenance of most highways is the responsibility of the individual states, and the public educational systems, despite a large funding role by the federal government, are primarily paid for by county or city governments. Police and fire protection and sanitation services are also the responsibilities of local government.
Regulation and Control. The government regulates and controls private enterprise in many ways, for the purpose of assuring that business serves the best interests of the people as a whole. Regulation is necessary in areas where private enterprise is granted a monopoly, such as in telephone or electric service, or in other areas where there is limited competition, as with railroads or airlines. Public policy permits such companies to make a reasonable profit, but limits their ability to raise prices unfairly (as defined by the regulators), since the public depends on their services. Often control is exercised to protect the public, as for example, when the Food and Drug Administration bans harmful drugs, or requires standards of quality in food. In other industries, government sets guidelines to ensure fair competition without using direct control.
Stabilization and Growth. Branches of government, including Congress and such entities as the Federal Reserve Board, attempt to control the extremes of boom and bust, of inflation and depression, by adjusting tax rates (including regulations pertaining to depreciation), the money supply, and the use of credit. They can also affect the economy through changes in the amount of public spending by the government itself.
Direct Assistance. The government provides many kinds of help to businesses and individuals. For example, tariffs permit certain products to remain relatively free of foreign competition; imports are sometimes taxed so that American products are able to compete better with certain foreign goods. Government also provides aid to farmers by subsidizing prices they receive for their crops. In quite a different area, government supports individuals who cannot adequately care for themselves, by making grants to working parents with dependent children, by providing medical care for the aged and the indigent, and through social insurance programs to help the unemployed and retirees. Government also supplies relief for the poor and help for the disabled.
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