Microeconomics - L5 Government Flashcards
What is the role of the government in the economy?
Government has the responsibility for making and enforcing laws as well as management of the economy.
What is the level of government intervention in a market capitalist economy?
Low
What is Keynesian Theory?
J.M. Keynes suggested in his 1936 book ‘The General Theory of Money, Employment and Interest’ that the visible hand of the government should replace, at least partly, the invisible hand of the market.
Keynes was recommending increased government involvement in the economy after the Great Depression rather than allowing market forces to play out without intervention.
Identify 3 ways the government intervenes in the Australian economy today.
- Macroeconomic Demand Management Policies
Eg. Budgetary policy and Monetary policy - Promotion of an efficient allocation of resources
- By passing legislation
What is budgetary/fiscal policy?
The manipulation of government receipts and outlays to assist the achievement of government’s economic and social goals.
What is monetary policy?
Policy operated by the Reserve Bank of Australia (RBA) which involves the manipulation of interest rates to achieve the government’s social and economic goals.
What is market failure?
When an unregulated market fails to allocate resources efficiently, the government intervenes in an attempt to correct the market failure or to ensure fairness/equity.
Eg. Setting a national minimum wage through the Fair Work Commission.
Why does the government (parliament) create legislation?
List two examples of laws passed by parliament as examples of government intervention in the economy.
To ensure the smooth functioning of the economy and to promote equity and fairness between economic agents.
Examples:
Environment Protection Act 2017 (Vic)
Occupational Health & Safety Act 2004 (Vic)
Fair Work Act 2009 (Cth)
Competition and Consumer Act 2010 (Cth)
