Question

Is the Economy Self Adjusting in your country or Need Intervention from authorities ? WHY ?

Answer 1

U.S. had a capitalist economy that relies on the principle of a free market, theoretically, it is primarily the decisions of consumers and producers that mold the economy.

Economics conditions often inform the policy changes that governments elect to enact. And in the U.S, specifically, government policy has always had a large amount of influence on economic growth and the creation of new business entities.

However, the government may decide to regulate some aspects of this economic activity in order to engineer economic growth or prevent negative economic conditions in the future. In general, a government's active role in responding to and influencing the economic circumstances of a country is for the purpose of preserving and furthering the economic interests of important stakeholders or the general citizenry. In the U.S., many studies have revealed that the economy is a major factor that affects how people vote( specifically in the US presidential election). Strong economic growth typically translate into more hiring and higher wages for citizens, and higher corporate profits. Higher corporate profits are typically positive for the market as well. In order to ensure strong economic growth, there are two main ways that the federal government may respond to economic activity : Fiscal policy and monetary policy.

Monetary policy: Some of the most common ways that a government may attempt to influence a country's economic activities are by adjusting the cost of borrowing money (by lowering or raising the interest rate), managing the money supply, and the controlling the use of credit. Collectively, these policies are referred to as monetary policy.

Fiscal policy: The government may also adjust spending, tax rates, or introduce tax incentives. Collectively, these policies are referred to as fiscal policy. Government spending and taxes are controlled by the President. As a result, these elected members of the government have a great deal of influence on the economy.

Fiscal and monetary policies are intended to either slow down or ramp up the speed of the economy's rate of growth. This, in turn, can impact the level of prices and the employment rate in the country.

After the Great Depression, the greatest threat to the stability of the U.S. economy were recessionary periods: periods of slow economic growth and high unemployment rates. In combination, these two factors created a sustained period of decline in the GDP. In response to this, the government increased its own spending, cut taxes (in order to encourage consumers to spend more), and increased the money supply ( which also encouraged more spending).

Beginning in the 1970s, a different economic reality emerged; which led to a high level of inflation. In response to these economic factors, the U.S. government started focusing less on combating recession and more on controlling inflation. Thus, the government enacted policies that limited government spending, reduced tax cuts, and limited growth in the money supply.

At this time, the government also shifted away from its reliance on fiscal policy--the manipulation of government revenues to influence the economy. The fiscal policy did not prove effective at addressing high levels of unemployment, and vast government deficits. Instead, the government turned to monetary policy - controlling the nation's money supply through such devices as interest rates - in order to regulate the overall pace of economic activity.