If the government intervenes more in the market, what are the short-term and long-term results?

Expert Answers

An illustration of the letter 'A' in a speech bubbles

The answer to this depends on which government you are discussing, what markets, and the precise forms of intervention. 

For example, in the wake of the financial crisis of 2008, many governments in the developed world intervened by reducing interest rates and increasing monetary supply as a stimulus and to prevent recessions. Although this sort of intervention was successful, such tools are limited as of 2016 by interest rates being at a historically low level. 

Another way governments can intervene in markets is by setting industrial policies that might include subsidies or tax breaks for favored industries. While some industries might benefit from such policies in the short term, over the long term they can lead to inefficient companies that rely on taxpayer subsidies for their survival. Such policies can also contravene various global and regional trade agreements and lead to trade wars. 

Another type of intervention is direct government ownership of essential industries such as utilities, railroads, hospitals, and communications infrastructures that function as public goods. Economists are divided on whether such ownership allows for greater access to common goods for people of all incomes or whether such state-owned enterprises tend to be inefficient.

See eNotes Ad-Free

Start your 48-hour free trial to get access to more than 30,000 additional guides and more than 350,000 Homework Help questions answered by our experts.

Get 48 Hours Free Access
Approved by eNotes Editorial Team