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What is the relationship between government and the economy? What is the relationship between the guarantees a government provides and the economic system in that country? Is this a necessary relationship?

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The economic system of a country often determines how it is governed. For example, the United States moved from the mixed economy of the mid-twentieth century, in which there was both a strong government sector and a strong business sector, to the modern economy, in which a weakening the government sector in favor of the corporate sector has led to more oligarchy and less democracy. In objective terms, this can be either good or bad, depending on how the oligarchy is managed.

In the Middle Ages, land-based wealth (with agriculture as the main economic engine) led to a hierarchical system built on aristocracy and monarchy, as a hierarchy was deemed the best way to organize a land-based economy. Those with the most land had the most money and power, which allowed them the added resources to defend large geographic areas against attack and invasion, a useful thing in an uncertain and unstable time period.

Economic upheaval or distress is often closely linked to changes in the form of government. In both France in the late-eighteenth century and Russia in the early-twentieth century, for example, monarchial government had become too slow to adapt and too out of touch with common people, which, when the economic realities became too dire, led to revolt and the replacement of monarchy with, in France, a republic, and in Russia, communism.

People tolerate quite a bit of economic stress, but they also expect their governments to manage economic well-being at some level; when they do not, change tends to come. Economic realities do often drive how governments are organized.

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This can be a very vague question in many ways. For this answer, I will use the United States as an example. The relationship between the government and the economy of a country is directly related. The government assumes the role of policymaker that directly and indirectly affects the economy of a country. For instance, the Federal Reserve, a government entity, sets interest rates and makes major financial decisions for the US. The government also uses policy to boost or slow down the economy. Moreover, political ideology and leadership influences the economy through tax rates.

To discuss guarantees from the government, we can use entitlement programs as an example. The United States welfare system is a guarantee backed by the government to help out struggling citizens. The more of these guarantees the government makes, the more socialized the economy becomes. Public schooling and roads are two guarantees the government provides, for instance. If the government did not provide such things, the private industry would fill the void. However, this requires government regulation to ensure fair play. This is the primary reason why the relationship between the government and the economy is necessary.

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