Appropriate Role of Government Intervention

Appropriate role of government intervention
Insert name:
Institution:
Date:
Question 1
Barr (2012) claims that the government has a duty to play during difficult economic situations by redistributing income in favor for the people who are poor, deal with externalities and provide public goods and services (p.13). Market system faces several limitations that can be effectively overcome by the government interventions. The government should offer services and goods which private entrepreneurs cannot offer. The government needs to focus on maintaining economic stability. The important role of the government is fiscal responsibility that is a vital part of that stability. Government debts can cause more burdens and weaken the foundation of the economy.
In addition, the government has a duty to develop sound macroeconomic policies and ensure the political institutions are strengthened. Difficult economic situations can be addressed if the institutional role of the government is promoted. According to Barr (2012), the government has a duty to offer an enabling environment to stabilize economic growth by maintaining the stability of the currency, defending enforcing property rights, and offering oversight role to assure people that their transaction partners in their market are held accountable (p.3).
Question 2
The government should intervene to address the market failures. Barr (2012) says that in a free market, public goods like national defense and law and order may not be offered due to lack of fiscal incentives to offer such public goods; citizens do enjoy using these goods without paying for them (p.59). Thus, to offer public goods such as roads, police services, street lights; it is necessary for the government to provide them. Goods like health care and education are also classified as public goods. Providing such goods in a free market is usually faced with inequality and unreliability.
Furthermore, it is a duty of the government to offer universal education to make certain that every person has the opportunity of acquiring education that has a great social benefit. Apart from that if there are externalities in production and consumption, a free market fails to offer the most socially effective outcome. For instance, a profit maximizing company will ignore taking the external costs that pollution cause through burning c...