ACT 23 The US Govenment and the Economy Essay Example | Topics and Well Written Essays - 500 words

ACT 23 The US Govenment and the Economy - Essay Example According to the model, C indicates consumption by consumers, X and M represent exports and imports respectively. The ‘I’ and ‘G’ represent government investment and government spending respectively. It is impossible to compute the GDP without considering the government’s investment in the public sector and its spending. Government’s investments take the form of gross capital formation and final consumption expenditure. For example, government investment in gross capital formation entails investing on projects that ought to derive future benefits to the public such as infrastructure. On the other hand, investments on final consumption entail purchasing goods and services that ought to satisfy the public’s immediate needs. The government’s spending forms the third component of the GDP model. Spending in this case refers to the act of obtaining and releasing money to the economy. Such a phenomenon is referred to as the fiscal policy. The government controls the monetary system through treasury bonds and bills. The government sells the treasury bonds and bills to the public to reduce the amount of funds in the economy. On the other hand, the government may buy the treasury bonds and bills from the public to increase the amount of funds in the economy. As such, the government controls the flow of money by trading on the treasury bonds and bills. The government’s role in the economy should not cease. In fact, its role ought to increase. This is possible through the monetary policy. The government has control over the flow of funds in the economy. In addition, the flow of funds in the economy dictates economic growth. However, such flow ought to be kept at a manageable level to avoid inflation or slow economic growth in the case of excessive funds and a deficit respectively. The government ought to apply stringent measures to control how commercial banks implement the monetary policy. The public ought to access funds at a