00:01
So this question asks us to identify and explain the function the government has in the economy and explain which is perhaps the most controversial.
00:08
So the role of the government can be broken down in essentially four sections.
00:13
The first is responding to externalities.
00:18
So different goods and services can have positive or negative externalities, which essentially are unintended and uncalculated consequences of the production of a certain good or service.
00:28
And the government can use tools such as subsidies or subsidies in order to increase or decrease the supply of this good based on whether or not it has a negative or positive externality.
00:41
The second role of the government is to stabilize the economy.
00:46
So the government can use both expansionary and contractionary policy in order to stabilize the economy based on where it is.
00:54
They can pass a stimulus package if the economy is on the verge of a recession or, they could increase taxes if the economy is overheating.
01:04
So both contractionary, as well as expansionary policy, are the responsibility of the government...