How does Government Influence the Economy?

American economy has seen both stability and instability. During an economic crisis, general public traditionally criticizes the government. This is followed by demand for solutions. Some would just keep quiet thinking that government intervention in capitalistic economy equals to socialism. Our America actually does not work that way.

In fact, our government has full power to control the economy through various methods. See below:

1. Imagine, prices of goods and services are going up and currency value is going down in the form of inflation. Government can take care of this with tax hike and slow spending. The mission here is to lower the supply of money in the nation so that the currency value once again goes up and prices fall.
2. Prices have fallen, but now we have an economic crisis and severe unemployment rate. To solve this problem, government will pump up more money into the economy and also speed up spending. In some cases, taxes are also reduced. What this does is put more money in the hands of people, making them more active in their shopping spree. This increases demand for more goods and services which then influences the businesses to hire more people to produce and supply them. This is how jobs get created and economy begins to see the dawn.

3. Government can also influence the economy through bills provided they get enough votes from the House. For instance, in order to bring back the outsourced jobs, few democrats introduced Bring Jobs Home Act. It failed to turn into law because the senate republicans blocked it.

histogram and money

4. Government can start programs like highway renovation to hire unemployed workers. The mission here is to put money into the pockets of people which in turn encourages them to spend and warm up the economy.

5. Similar to above is the policy of buying goods and services from certain businesses deemed too small to compete with big corporations. This is how government aims to help them make money. But the businesses first must show that they are truly disadvantaged by meeting the criteria set by policy of Women-Owned (WOSB) and Economically Disadvantaged Women-Owned Business (EDWOSB).

You may also check out:
How Federal Budget Money Is SpentWays Government is Different from Business
How Government Offices Use Research Data?
What is Crisis Design in Public Administration?

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