What are the primary economic functions of government?

The primary economic functions of government are resource allocation, income redistribution, and macroeconomic stabilization.

Fill in the blank: The national budget reflects the government's economic policy and outlines how resources will be ___ and how income will be ___.

Allocated; redistributed

True or False: Adam Smith believed that government intervention is unnecessary in all economic areas.

False; Adam Smith acknowledged the need for government in areas like national defense and public goods.

Explain the concept of market failure and its significance in government intervention.

Market failure needs government intervention.

• Inefficient resource allocation occurs.

• Public goods may be underproduced.

• Government corrects market inefficiencies.

What is the main focus of the resource allocation function of government?

The main focus is to ensure efficiency within the economy by correcting inefficiencies and maximizing overall welfare.

Fill in the blank: The government uses ___ and ___ policies to maintain macroeconomic stability.

Fiscal; monetary

What role does the Finance Commission play in fiscal federalism?

Finance Commission's Role Explained

• Evaluates Union-State finances.

• Recommends tax sharing methods.

• Defines tax distribution principles.

True or False: The stabilization function of government aims to achieve economic growth without any concern for inflation.

False; the stabilization function seeks to maintain both economic growth and low inflation.

What are the three macroeconomic goals that governments typically pursue?

Economic growth, high levels of employment, and stable price levels.

Fill in the blank: The government's role in correcting externalities involves using measures such as taxes or ___ to align private costs with social costs.

Subsidies

Explain the conflict of goals that can arise in budgetary policy.

Budgetary policy goals can conflict.

• Equity may require higher taxes.

• Higher taxes can reduce efficiency.

• Lower growth can decrease revenues.

What is allocative efficiency, and why is it important in an economy?

Allocative efficiency optimizes resource use.

• Maximizes societal value produced.

• Minimizes waste in the economy.

• Enhances overall welfare and efficiency.

What are the three primary macroeconomic goals that governments aim to achieve for improving societal welfare?

The three primary macroeconomic goals are economic growth, high levels of employment, and stable price levels.