the role of the government in the economy

There are four main theories concerning the role of the government in the economy, including: Laissez-Faire Economics, Keynesian Economics, Supply-Side Economics, and Monetarism ,
- The idea of laissez-faire economics is for the government to abstain from involvement in anything that will affect the economy. The system includes the idea that the government should not regulate the marketplace, workforce, environment, etc. and allow the economy to move and evolve naturally (Cummings 584).

Keynesian economics is the opposite of laissez-faire economics. Based on the ideas of John Maynard Keynes, the idea stated that if the people didn't consume or invest enough into the marketplace, the government should step in and regulate the economy using fiscal policy. Fiscal policy involved either tax cuts or increased spending to combat recession. According to Keynes, if the government had to spend money to combat recession, the resulting deficit was not bad because it was necessary (Cummings 585).

Supply-side economics is an economic theory designed to combat the effects of inflation. It called for tax and spending cuts, which would in turn give people the incentive to produce and increase the supply of goods available. The tax reductions would leave more money for the building of new factories and job growth, allowing, in theory, for the benefits to flow to the public (Cummings 585).
Monetarism is the idea that the quantity of money in circulation needs is an important factor in how the government can regulate the economy. People who support this theory believe that the government
- needs to be able to ensure that the money supply grows with the economy at a constant rate, while at the same time controlling interest rates and other factors that would affect the economy (Cummings 586).

Role of Government in the Economy
Government can provide the legal framework and services needed for the effective operation of a market economy. To do this, government has five primary functions in economic development:
1. Providing a legal and social framework
2. Providing public goods
3. Government regulation
4. Reallocating resources
5. Stabilizing the economy
The existence of a problem in the market (or “market failure”) does not automatically mean that government intervention can allocate resources more efficiently. A substantial amount of information is required to find the optimal allocation of resources, meaning that “government failure” may end up being worse than the original market failure it was meant to address.
PENDAPAT KEEMPAT
We need government to provide the fundamental legal and social framework for a free market economy. This framework implies necessary laws that define the property and other rights, enforce contracts, and describe the status and form of various business organizations. We need government to define the rules of the game. Through legislation the government acts as a referee and forbids foul play. It prohibits cheating and the sale of adulterated foods and drugs; it establishes quality standards and defines the qualifications of those providing professional services such as lawyers and doctors. We need government to create conditions that ensure free competition. In the absence of a central agency with necessary coercive powers, private markets tend to operate in an indifferent and sometimes cruel manner.
Business firms like to collude, if they can, in their self-interest and against the interest of the consumers, the poor, and the weak. Also, the reverse may happen. If the number of buyers is small and the sellers are many, the buyers may collude to coerce the sellers. Neither situation is desirable.