Explain how the government plays both a direct and an indirect role in the economy. 

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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In the United States, the government plays many roles in the economy.  Some are direct and some are indirect.

In terms of the direct role the government plays, we can think of many different examples.  One example would be that the government actually runs certain businesses.  These are businesses like Amtrak or like the US Postal Services.  They are businesses that would not exist if the government did not run them.  Another example would be through direct regulation.  The government, for example, mandates that almost all workers be paid a minimum wage.  This has a direct impact on the economy.

However, there are also other ways in which the government affects the economy.  For example, the government, in the form of the Fed, sets interest rates.  These rates affect the amount of economic activity that goes on in the country.  As another example, the government pays for public schools and public universities.  The presence of these schools makes for a much more educated workforce.  This workforce allows the US economy to be more innovative and productive than the economies of some other countries.

In these ways, the US government plays both a direct and an indirect role in the economy.

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