Question

World economies have periodically experienced economic boom as well as downturns in the form of the great depression and recessions. Various scholars have proposed different interventions to these situations. When is it appropriate for government to intervene in the economy? Discuss.

Answer 1

PROBLEMS ECONOMY MY COME ACROSS

A depression is any long-term downturn in economic activity in economies which maybe one,two or more. Fall in price , financial crises, stock market crash, and bank failures are the common or conventional elements of a depression,The worst depression the world has ever witnessed was the great depression , lasting from 1929 to 1939. It began after the stock market crash of October 1929, which sent Wall Street into a panic and wiped out millions of investors.The Great Depression of 1929 completely devastated the U.S. economy. Many banks failed.  Unemployment rose to around 30%  Housing prices plummeted , international trade collapsed by,and deflation soared .The opposite of depression is inflation,, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time.The worst case of inflation was The Post-World War II hyperinflation of Hungary held the record for the most extreme monthly inflation rate ever – 41.9 quadrillion percent (4.19 × 1016%; 41,900,000,000,000,000%)amounting to prices doubling every 15.3 hours.Recession on the other hand is a business cycle contraction when there is a general decline in economic activity.

WHEN SHOULD GOVERMENT INTERVENE

Government intervention is actions carried out by the government that affects the market economy with the objective of having an impact in the economy

MAIN REASONS FOR GOVERNMENT INTERVENTIONS

• To improve the performance of the economy.
• achieve a more equitable distribution of income and wealth
• correct for market failures

Governments may intervene in markets to promote general economic WELFARE. Maximizing social welfare is one of the most common reasons for government intervention. Examples- disabling monopolies and regulating negative externalities such as pollution.

Another case of government interventio n is during circumstances such as the ones mentioned above like depression etc.By taking appropriate fiscal and monetary measures like changes in government spending,tax rates,bank rates etc.