The Economic

Role of
Government
Dave Vincent C. Lañas
Thought to Ponder…

In your subjective
view, what does the
government do in
improving our economy?
Is our economy
improving?
Government’s Influence in Economic Activity

• Monetary Policy
• Fiscal Policy
Monetary Policy

• The government regulates the money

supply and the level of interest rates
of actions that increase or decrease
it and raise or lower short-term
interest rates.
Fiscal Policy

• The government uses its power to tax

and to spend which determines in
increasing or decreasing the total
supply of money in the economy.
Market Failure

• It is the status quo where the private

sector cannot able to allocate
efficiently our resources by means of
using price mechanism or when the
operation of market forces lead to a
welfare loss.
Market Failure
• Complete market failure

→ Market does not supply products at all.

Market Failure
• Partial market failure

→ Market functions but it produces the

wrong quantity of a product at the wrong
price
Causes of Market Failure
Externalities

• Demand and supply prices do not fully reflect to

the value of goods produced or not produced.

Environmental Pollution These failures can

only be corrected by
• Environmental factors that intervenes the government.
production of goods.

Lack of Goods and Services

• When the market cannot meet people’s needs

and wants.
Government Failure

• A condition where the government

failed to allocate resources and still
continue their programs even though
they were unable to meet their
objectives.
Causes of Government Failure
Conflict of Interest

• The chase of self-interest between politicians

Policy Myopia

• The tendency of politicians to only look for

short-term solutions rather than analysis of long
term considerations.

Regulatory Capture

• Industries under the control of a regulatory

body operates in favor of the interest of
producers rather than consumers.
 Economic Systems
Economic system define how the
market entities and market
forces interact.
4 Primary Types of Economic Systems

• Capitalism
• Socialism
• Communism
• Fascism
Capitalism

• Private ownership and control is allowed in

accord with their own interests and maximize its
profits base on its discretion.
• Government power is kept at the minimum only
at the level of guiding for peace, justice and
tolerable taxes.
Capitalism

• Pure Capitalism (Laissez-faire Capitalism)

government’s role is restricted to providing and
enforcing the rules of the law by which the economy
operates but it does not interfere with the market
Communism

• An economic and social system in which there is no

private property.
• Common ownership of all land and capital and
withering away of the coercive power of the state.
• Social relations were to be regulated on the fairest of
all principles: from each according to his ability, to
each according to his needs.
Fascism

• Economic and governmental system led by a

dictator, where private ownership of the
production exists but the government has a
strong centralized power for planning.
Socialism

• Economic and political system that pursues to

reallocate the wealth more equitably by the collective
ownership of natural resources and major industries,
such as public utilities.
• Highlights equality than success: values laborers by
the time they give rather than the amount of value
they produce.
• Most small or extra entities would remain privately
owned.
 Basic Comparison among Economic Systems

Capitalism Communism Fascism Socialism

Private ownership and Private property is not Private ownership Collective ownership
control is allowed allowed (all resources exists but the of natural resources
are owned by the state, government has more and major industries
not by individual control in terms of
citizens) planning
Government has little Government takes all Government has Government is fair to
to no control control stronger control all ( aims for equality)
END…