Question

Jack says, "I think it is a little like when you have a cold ot flu.You don't need to see a doctor.In time your body heals itself That's sort of the way the economy works too. We don't really need government coming to our rescue ever6time the eco6gets a cold." According to Jack, how does the economy work? Explain why agree or disagree.

Answer 1

Jack sees the economy as something that can revive itself. This means that according to him, the economy will function on its own and revive itself, for instance, when there is a recession, it can itself revive and recover. This is not true because government intervention is very important. To explain it using the same example as Jack, we would not go see a doctor when we have a cold but this is based on the opinion that market problems are not severe like a cold. This is often not true as market inefficiencies are far more serious. Market can allocate and function efficiently to an extent but it is not always efficient when left alone. The government comes in to regulate and intervene depending on the need of the hour. For instance, in times of recession, government intervention is needed to revive the economy and create demand. There are various functions of a government which are very crucial for an economy like overcoming market failure, providing public goods, regulating labour markets and bringing stability to the economy. Without a government, the economy will collapse as there would be market inefficiencies.

Let us consider a situation like the pandemic we are going through right now where all economic activities have come to a halt. If we did not have a government to support the poor and pump money into the economy constantly to revive purchasing power. The world economy would have been in a recession and collapsed. The absence of a government would make it impossible to recover from such situations.