Unit 2.B - Role of Govt

Question 1

What are the three roles of govt (unit 2 edition)

Answer 1

• Stabilising the business cycle
• Regulation of business enterprises
• Redistribution/taxing + spending on the provision of goods and services

Question 2

Which issues does the regulation of business enterprises help address?

Answer 2

Regulation of business enterprises addresses primarily microeconomic failures:

• Abuse of market power
• Externalities
• The common goods problem
• Demerit goods
• Protection of workers, consumers, and the environment

Question 3

How is the regulation of business enterprises achieved?

Answer 3

Through the use of…

• Legislative powers
• ACCC
• Taxation
• Regulation

Question 4

Which issues does redistribution/taxing + spending on the provision of goods and services help address?

Answer 4

• Public goods problem
• Merit goods problem
• Positive externalities
• Income inequality
• Instability of the business cycle

Question 5

How does the govt fulfill the role of redistribution/taxing + spending on the provision of goods and services?

Answer 5

• Taxing powers (income tax, GST, land tax)
• Redistribution to lower income earners (through progressive tax system, welfare payments, child support, etc)
• Provision of public goods
• Subsibdy of merit goods.

Question 6

How does the govt stabilise the business cycle?

Answer 6

• Through changing the balance of taxing and spending according to the phase of the business cycle and overall health of the economy.
• Control of the monetary supply.
• To a lesser extent, regulation.

Question 7

Which issues are partially addressed when the govt fulfils its role in stabilising the business cycle?

Answer 7

Stabilising the business cycle can help…

• Provide long term growth and certainty for businesses, investors, and households.
• Reduce unemployment in recessions.
• Reduce high levels of inflation in booms.