Question

When do you think the government should intervene in our economy and to what extent? Cite recent and relevant examples to support and clarify your views.

Answer 1

Govt should intervene when there is market failure. It should intervene to provide public goods because being non rival and non exclude the private market can not provide them. Further it should intervene when initial costs of project are so high that they prevent private production like in case of shipyards, infrastructure etc. The govt should also intervene to provide merit goods because their consumption is desirable for society and so on.

The govt should also intervene when there is excessive boom and inflation. But most importantly it should intervene during depression. In other cases it should give incentives, make small intervention but in case of depression and unemployment it should intervene substantially to prevent damage. As shown by recent 2008 financial crises backing Freddie Mac etc , purchasing assets of private banks, bail out, stimulus etc became necessary. Had govt not intervened world could have faced great depression again for a long period of time