1. GROUP
PRESENTATION
RELATIONSHIPS BETWEEN GOVERNMENT AND
THE FIRM.
Dominic Mackenzie

2. OUR PLAN:
1. Introduction
2. Economic functions of the government in a market
economy.
3. The main reasons for government for government
intervention
4. Methods of government intervention: Administrative
methods and Economic methods
5. Limitation of intervention into a market economy
6. Examples of government intervention in the economy.
7. Conclusion
8. Q&A

3. INTRODUCTION
Is it necessary to interfere to a market or it simply for the sake of government
control?

4. ECONOMIC FUNCTIONS OF THE
GOVERNMENT IN A MARKET ECONOMY.
There are five economic functions of government:
 Providing the legal structure
 Maintaining competition
 Redistributing of income
 Reallocation of resources
 Promoting stability

5. THE MAIN REASONS FOR
GOVERNMENT INTERVENTION

6. THE MAIN REASONS FOR GOVERNMENT
INTERVENTION
• To correct for market failure
• To achieve a more equitable distribution of income
and wealth
• To improve the performance of the economy

7. METHODS OF GOVERNMENT
INTERVENTION
It is the economics of regulation, in these sense of the
application of law by government for various purposes.
Countering, overriding, or bypassing regulation is regulatory
capture where a regulatory agency created to act in the
public interest.
The probability of regulatory capture is economically biased

8. ADMINISTRATIVE
METHODS
Such methods are typically special for centrally planning
economy. State regulation in the conditions provided in the
forms of businesses bringing policy targets, centralized
distribution of logistical, financial, credit and other
resources.
Administrative methods are used also in the market
economy. State regulation of the market economy is
determined by administrative methods that need to solve
macroeconomic and social issues in the public interest.

9. ADMINISTRATIVE
METHODS
Financial support from the state budget is usually carried out
in the form of grants, subsidies.
A subsidy is a fixed amount of public funds allocated free of
national-state and administrative-territorial entities for
funding earmarked spending of budgets.
The administrative methods of state regulation relate some
antitrust measures.

10. ECONOMIC METHODS
The economic methods include budgetary, tax and monetary
authorities.
The most important method of tax regulation is to apply a
differentiated approach to the taxation of enterprises.
The essence of monetary regulation is that the state
influences the money supply and interest rates, and they in,
on consumer and investment demand.

11. ECONOMICS METHODS
Public authorities have the the opportunity to influences the
process.
However, if the country has intensified inflation, the reserve
requirement increases.
There are other ways by the state to private banks.
Sometimes their own bank deposits are not enough to lend
to borrowers profitable.
Therefore, the Central Bank may raise or lower the interest
rate on its loans to private commercial banks, and thus,
affect the rate of interest under which they will lend money to
their customers.

13. EXAMPLES OF GOVERNMENT
INTERVENTION IN THE ECONOMY.
Failed intervention.
The consequences of Five-Year Plans for the National
Economy were mostly negative:
• Deficit
• Low standard of living
• Extra-economic coercion in droves
• Restrictive limitations of market mechanisms,
centralization of economic processes
• Stunting from other, less “important” sectors of the
economy – light industry and the agricultural sector

14. POSITIVE INTERVENTION:

15. CONCLUSION

16. Q&A

17. OUR QUESTIONS:
1 What are the economic functions of the government in a
market economy?
2 Can you name main reasons for government intervention?
3 Who are missed in our team?
4 Why consequences of Five-Year Plans for the National
Economy were mostly negative?