Government Intervention in the Economy: Using Tax, Subsidy & Price Control

Government Intervention in the Economy: Using Tax, Subsidy & Price Control

Question: In order to improve the performance of the economy, the government may _______ in the market by using tax, subsidy, or price control. (2 points)

A. reform B. manipulate C. intervene D. supervise

Answer: C. intervene

Explanation:

The term 'intervene' refers to actions taken by a government to influence the economy. Governments use various tools to intervene in markets, including:

• Taxes: Taxes can discourage the consumption or production of certain goods and services. * Subsidies: Subsidies can make certain goods and services more affordable and encourage their production or consumption.* Price controls: Governments may impose price ceilings (maximum prices) or price floors (minimum prices) to regulate prices in certain markets.

These interventions aim to correct market failures, promote economic growth, manage inflation, or achieve other social goals. While the term 'manipulate' might seem similar, it carries a negative connotation of unfair or dishonest influence, whereas 'intervene' is a more neutral term for government actions in the economy.