ACT 23 The US Govenment and the Economy - Essay Example

The U.S. Government and the Economy al Affiliation) The U.S. Government and the Economy The role of the government in the economy cannot be overlooked as it governs the fiscal policy and a significant part of the monetary policy through the Central Bank. As such, it is prudent to quantify the government as one of the most significant player of the economy. To begin with, the economy entails the supply of funds between individuals, institutions, and governments. To illustrate the basic form of government’s role in the economy, the computation of the Gross Domestic Product (GDP) indicates the government as a significant component.

The GDP model appears as below:According to the model, C indicates consumption by consumers, X and M represent exports and imports respectively. The ‘I’ and ‘G’ represent government investment and government spending respectively. It is impossible to compute the GDP without considering the government’s investment in the public sector and its spending. Government’s investments take the form of gross capital formation and final consumption expenditure. For example, government investment in gross capital formation entails investing on projects that ought to derive future benefits to the public such as infrastructure.

On the other hand, investments on final consumption entail purchasing goods and services that ought to satisfy the public’s immediate needs. The government’s spending forms the third component of the GDP model. Spending in this case refers to the act of obtaining and releasing money to the economy. Such a phenomenon is referred to as the fiscal policy. The government controls the monetary system through treasury bonds and bills. The government sells the treasury bonds and bills to the public to reduce the amount of funds in the economy.

On the other hand, the government may buy the treasury bonds and bills from the public to increase the amount of funds in the economy. As such, the government controls the flow of money by trading on the treasury bonds and bills. The government’s role in the economy should not cease. In fact, its role ought to increase. This is possible through the monetary policy. The government has control over the flow of funds in the economy. In addition, the flow of funds in the economy dictates economic growth.

However, such flow ought to be kept at a manageable level to avoid inflation or slow economic growth in the case of excessive funds and a deficit respectively. The government ought to apply stringent measures to control how commercial banks implement the monetary policy. The public ought to access funds at a reasonable rate to maximize on economic growth while avoiding inflation. In addition, the government is responsible for protecting the value of the local currency (U.S. Dollar). Through the monetary and fiscal policy, the government will ensure that the monetary value improves to enhance economic growth.

It is without doubt that the role of the government in the economy is unmistakable. Without the government’s spending and investment, there would be no GDP. In addition, without the government’s participation, there would be no finances available to the public. Therefore, it is prudent to argue that the government is the most significant player in the economy as it is the source of funds demanded by the public.