“The Role of the Government”

 > Explanatory Article by Marios Kyriakou, MSc Economics

About the author: Marios Kyriakou has a bachelor’s degree in Economics from the University of Cyprus and a master’s degree in Economics from the University of Warwick. He is also a holder of CySEC’s Advanced Certificate in Financial Services Legal Framework and a professional in Online Trading, Forex and CFDs with more than 7 years of experience.

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<Last updated 13.04.2020>

Dear reader,

Hi! If you are interested in Economics, I’ve prepared the below to help your understand the government’s role. You should take a look at this short article in which I discuss about the role of the government in each economic system.

Each society needs a framework of rules and regulations, laws, principles and traditions that govern how decisions will be made regarding production, distribution and consumption of goods and services. To satisfy needs and wants, the producers, or providers, must provide economic goods and services to the people through such framework called Economic System.

Economic agents: households and businesses interact with each other for the provision of goods to take place. How? Is there an entity that governs how these provisions will take place and, in general, to govern their economic relationships?

> In a Free or Market Economy, the laws and forces of supply and demand are free from any intervention by a government. The government limits its activities to administer justice, enforcing private property rights, and defending the nation against aggression. It determines the framework in which the economy operates and monitors without essentially participating in the production/provision process. The government still plays an important role. For example, for the market mechanism to work, an entity or mechanism must exist and enforce private property rights. This is the right to have ownership over a resource. The owners have, or must have, the ability to exchange it with others. If people cannot have a guarantee and feel secure that they have ownership over resources, the system collapses.

> In a Command or Planned Economy, the government organizes, controls and directs the economy as a whole. Except than determining the framework in which the economy operates, it also participates in the production/provision process and takes all the relevant decisions relating to production and distribution of goods and services to the people.

> The more familiar to us Greeks, Mixed Economy System: it blends capitalism/the free market system with some government intervention. In this system the government intervenes to correct market failures and to ensure that resources are distributed according to the national interest and general welfare. The government has the important responsibility of setting up a general framework based on laws that ensures security and safety.

Its role in a mixed Economy is, or should be:
– Efficient allocation of resources.
– Economy stabilization through lowering Inflation and Unemployment.
– Fair distribution of Income through taxation (progressive taxation system) and through social provision to households with lower incomes.
– Increases the rate of Growth of the economy.
– Protects Competition in an Economy.
– Protects the Environment.
– Provides public goods and services, goods that provide benefits to the whole society.
> Education, National Guard, Security, Construction, Roads etc.


“I hope I am clear on this one. If not, contact us on social media and we will do our best to help you.

Thank you for reading my articles and watching my videos.”

Marios Kyriakou

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International student version
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