Greater Equality – redistribute income and wealth to improve equality of opportunity and equality of outcome
Market Failure – Markets fail to take into account externalities and are likely to under-produce public / merit goods. For example, governments can subsidise or provide goods with positive externalities.
Macroeconomic intervention. – intervention to overcome prolonged recessions and reduce unemployment.
Arguments against Government Intervention
Governments liable to make the wrong decisions – influence by political pressure groups, they spend on inefficient projects which lead to inefficient outcome.
Personal Freedom. Government intervention is taking away individuals decision on how to spend and act. Economic intervention, takes some personal freedom away.
Market is best at deciding how and when to produce.
When we relate this situation with the concept of unemployment then we can say that in case of long run increase in demand will give maximum benefit to the company or the industry when the economy has a starting point when the employment level in the economy is full. This is known as inflationary gap. Inflation is least expected in the deflationary conditions when there is an unemployment equilibrium. Hence inflation may only increase when there is high or full level of employment in the industry. When there is full level of employment in the industry then there is very little chances of increasing money supply to increase the national output. Hence when money supply in increased then there is a modest scenario of inflation.
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