Why Do Market Economies Need Government United Kingdoms Economic Essay

Why Do Market Economies Need Government United Kingdoms economical development, lump and Unemployment - Essay ExampleSuch situations make out disadvantages of buyers and reduce buyer surplus for those particular markets. For this reason, free market economy can potentially impinge on the rights of a certain segment in the economy (Acemoglu, Golosov and Tsyvinski, 2008). A fair exchange implies a relationship of equality between the persons concerned, which is absent in these scenarios. Sometimes, in a market economy the employer and the employee atomic number 18 not in a relationship of equality. The employer can attempt to dictate terms to the employees, therefore, a safeguarding body is required to ensure payment of minimum reward and to enforce health & safety measures (Agarwal, 2007). Government presence in inevitable in such situation to ensure rights of certain groups is not compromised. ii) Governments are inquireed to provide provision of pubic goods whose benefits are distributed over a very large population. For instance, creation of roads and national defense cannot be provided by a private enterprise. Government interventions are needed in the market sparing system for these provisions (Halm, 2003). iii) Governments are also needed in market economic systems to provide social security to the citizens of the country. A market economic system cannot find mechanism to transfer funds from rich to poor. Governments serve the purpose of trim income differences between rich and poor in an economy (Sharma, 2009). Government invention is, therefore, essential for redistribution of wealth and income for a healthy society. United Kingdoms Economic Performance During Last Ten Years Growth Performance data of United Kingdoms economy is graphed below. The data exhibits that the economic performance and growth rate of United Kingdoms economy was at peak in the year 2000. The growth rate of the economy was highest which implies that the standard of living of UK citizens was increase at a very rapid pace. GROWTH PERFORMANCE Year GDP Change 2000 3.90% 2001 2.50% 2002 2.10% 2003 2.80% 2004 3.00% 2005 2.20% 2006 2.90% 2007 2.60% 2008 0.60% 2009 ?4.9% 2010 2.10% 2011 0.70% Growth of UKs economy hit the bottom in the year 2009. It appeared that the economy is on the path of improvement in the year 2010 however, growth figures were low again for the year 2011. Growth Performance the annual largeness figures of UK economy shows that inflation is rising even though growth rate of the economy is slow. Such figures are considered alarming because standard of living of people is compromised in two manners through low income growth, at the same time, a considerably high level of inflation (Baumol and Blinder, 2011). Annual Inflation Year Inflation Rate 2000 2.1% 2001 2.7% 2002 1.3% 2003 2.9% 2004 2.6% 2005 3.2% 2006 2.4% 2007 4.2% 2008 4.1% 2009 0.1% 2010 3.7% 2011 5.1% Unemployment Rate of UKs economy is exhibiting a trend of rising with the i nflation rate of the economy. This is considered one of the most challenging macroeconomic situations in macroeconomic text books. This is because a high inflation is generally associated with lower levels of unemployment since all factors of productions are considered to be highly utilized. Rising unemployment with inflation indicates major issues with the economy which need to be resolved (Henderson, 2003). Unemployment Rate Year Rate 2001 5.1% 2002 5.2% 2003 5.0% 2004 4.8% 2005 4.8% 2006 5.4% 2007 5.4% 2008 5.6% 2009 7.5% 2010 7.9% Deflationary Gaps and Appropriate Policy Responses Deflationary gap in an economy is