Economic Functions of Government Unit 9 6 Economic

Economic Functions of Government Unit #9

6 Economic functions of government • Maintain legal and social framework • Maintain competition • Provide Public Goods and Services • Correct for Externalities • Stabilize the Economy • Redistribute Income

Maintain legal and social framework • Define and enforce property rights (court system etc. ) • Establish a monetary system (Federal government controls the amount of money in circulation, regulates banks etc. )

Maintain competition • Create and enforce antitrust laws (government regulates prices of natural gas to homes, etc. )

Provide public goods and services • Public goods and services are those that markets will not provide in sufficient quantities (national defense, post offices, schools)

Correct for externalities • Reduce negative externalities (pollution in lakes and rivers by industrial waste) • Encourage increased production of goods and services that have positive externalities (public education, government subsidizes it because of the flow to society)

Stabilize the economy • Reduce unemployment and inflation and promote economic growth! (raising or lowering taxes etc. )

Redistribute income • Redistribute income from people who have higher incomes to those with lower incomes. (higher taxes for those with higher incomes helps pay for Welfare etc. )