Long Term Investment Decisions



Long Term Investment Decisions

Introduction

As per the free market concepts, buyers and sellers make their own trading decisions depending upon the market forces of demand and supply and all resources are effectively allocated in perfect market. But Government plays a vital role in creating a balance between public and private welfares and promoting economic growth. There are usually five basic roles of government in an economy, which are explained in discussion section below.

Discussion

Government is responsible for provision of a legitimate structure, which is a base of economy. The government is liable to formulate policies, enforce laws, define roles and limits of owners and apply penalties for wrongful of acts. Government is also liable for maintenance of competition and abolishes monopolistic activities of market. Government must work to create equal and regular distribution of income from rich to poor in order to combat poverty and unemployment. It must launch welfare programs, impose taxes and provide subsidies. Government is liable for providing necessary goods i.e. public and quasi public goods and services like defense, police protection, health care services, and educational programs. It is the government who is responsible for combating with inflation and unemployment, promoting stability in economy, increasing GDP, which is done by setting fiscal and monetary targets for each year (Aly, H. Y., 2008).

USA follows a free market system but it is regulated and intervened by the government to some extent. The government regulates the market in two ways i.e. economic and social regulation. Economic regulations are imposed on market to control prices in order to encourage new entrants in the industry and prohibit monopolistic activities. Social regulations are imposed to control social and environmental behaviors of corporate sector that bans harmful activities and promote generally appropriate activities. USA's economy has been witnessing both liberalization and conservative policies from a long time. USA's government has imposed various laws like Sherman Antitrust Act in 1890 to hinder monopoly, laws associated to food and drugs in 1906 for labeling purposes and food inspections. Federal Reserve is one of the government bodies that is responsible for controlling money supply and banks' activities in order to direct the effect of interest rates, Investment, inflation and exchange rates. The government has power to reduce capitalism from economy, initiated as result of 1930's rules by Roosevelt's government in order to control wage rate and hour, selling the quantity of stock, rights of union and labors, retirement income plans, subsidized the agricultural activities of USA, and generated insured and safe bank deposits. USA has formed numerous federal bodies that regulate trade, communication, product safety, and nuclear energy, medicines and employment opportunities. USA has also Clayton Antitrust Act and Federal Trade Commission Act to control price differences in business world and unfair trade. USA deregulated some sectors of economy like transportation in order to relieve some pressure from companies particularly in aviation, railway and trucks as means of transpiration. This act boosted competition in industries like airlines. The deregulation of telecommunication industry was also witnessed ...