Government intervention in the labour market to reduce inequality and market failure can take various forms. Minimum wages/living wages Maximum wages (rarely used) Legislation to prevent discrimination on the grounds of age, sex, religion. Legislation to support or regulate trade unions. Maximum working week Legislation on health and safety Behavioural nudges (e.g. encouraging workers to …
Readers Question: Does the Rahn Curve support the empirical evidence? If not, why not? Can you prove that there is a relationship between the level of Government Spending and GDP growth? The Rahn Curve suggests that there is an optimal level of government spending which maximises the rate of economic growth. Initially, higher government spending …
Readers Question: should the government build houses itself, encourage the private sector to build more houses, or play no part in the housing market at all? (justify your answer) Arguments for Government Building Houses House prices are currently too high due to a shortage of supply. If the government increase the supply it will help …
Government Borrowing can be acceptable under certain conditions In 2008/09, US borrowing rose sharply as the economy went into recession. The borrowing enabled the government to bailout the car industry and provide automatic fiscal stabilisers. Without government borrowing, demand would fall by more. 1. Recession If there is a downturn in the economy, there will …
Explanation of why government intervention to try and correct market failure may result in government failure. Summary Market failure is a socially inefficient allocation of resources in a free market. Market failure can occur for various reasons Externalities Demerit/merit goods Public goods Monopoly power Government failure occurs when government intervention results in a more inefficient …
Readers Question: Does government increases or decrease economic efficiency. Kindly explain as I have tried to look for the reasons. This is an open-ended question, which raises many different issues. To some, on the political right, it is a simple matter of governments bad, markets good. Others are apt to see the government as a …
Definition of government failure: This occurs when government intervention in the economy causes an inefficient allocation of resources and a decline in economic welfare. Often government failure arises from an attempt to solve market failure but creates a different set of problems. Reasons for government failure Lack of incentives: In the public sector, there is …
Readers Question: Who lends the government money? Government debt is primarily sold to banks, pension funds, private investors and overseas investors. These financial institutions and individuals effectively lend the government money in return for gaining a safe investment (bond) with a guaranteed interest payment. Approx 27% is ‘lent’ by overseas investors. Investors do not see …