ABSTRACT
This chapter aims to distinguish government’s indirect and direct roles in the economy. It summarizes the costs and benefits of regulation, and explains why regulation should be seen as a continuous process. The chapter discusses several contentious roles of government and examines the monetary policy and fiscal policy. It provides a short summary of economists’ view of the fiscal crisis, globalization, and global warming and also explains globalization, and analyses the importance of the law of one price. The chapter also explores that mix and the challenges facing the US economy in the coming decades. It describes economic system is best thought of as a pragmatic market economy. Economists agree that even in a primarily market-based economy, regulation is needed to see that those creating negative externalities stop doing so at least to the degree that others would be willing to pay them not to undertake those activities.
