Question

Discuss the role of government in each of the different economic models: pure centrally planned, pure market, market economy, and mixed economy

Answer 1

- pure centrally planned: government has complete control over economy.

- pure market: no government involvement.

- market economy: government provide legal and social frame work, provide public goods and services, stabilize economy.

- mixed economy: government is regulator charged with preserving competition and guides economy.

Answer 2

In a centrally planned economy, the government owns and operates production facilities and manages the flow of supply and demand rather than allowing interactions between businesses and consumers to determine supply and demand. In a pure market economy the government has no role. Instead, the market makes all allocation decisions. In a market economy, the government does not oversee the day to day micro transactions. Instead, it oversees the economy, making sure that it steps in to stabilize the market if it is going through a recession. The government is also allowed to step in and prevent trade or business with any country that it feels is a threat. In a mixed economy, the government can create a central plan that guides the economy. The government is also allowed to own important industries, such as aerospace or banking. In some mixed economies the government handles social programs like welfare or retirement.