ROLE OF GOVERNMENT Flashcards
Why does the government intervene in the economy?
To improve outcomes in public goods, income redistribution, business regulation, and economic management.
Why does the government provide private goods like power and water?
Due to high infrastructure costs and to avoid monopolies.
What are examples of public and merit goods?
Public - police, defense; Merit - housing, education, health.
How does the government use regulations?
Through standards, licensing, taxes, and subsidies.
Why does the government redistribute income?
To help low-income individuals achieve a standard living.
What policies are used in macroeconomic management?
Fiscal and monetary policies to stabilize economic growth and reduce unemployment.
What does the Lorenz Curve show?
Income distribution among population quintiles
What makes a ‘good’ tax?
Fairness (equity), simplicity, and efficiency
What are progressive, proportional, and regressive taxes?
Progressive - higher income pays more; Proportional - fixed rate; Regressive - lower income bears more.
What are the main roles of taxation?
Revenue, income redistribution, resource allocation, and managing economic cycles.
What are indirect taxes?
Excise on tobacco, alcohol, fuel; GST on most goods and services.
What does the Gini Coefficient measure?
Degree of income inequality, from 0 (equal) to 1 (unequal).
What reduces income inequality?
Progressive taxes, welfare payments, and in-kind transfers.
