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Micro economics individual project - Essay Example

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Due to the credit crunch which emerged in late 2007, not only the financial sector of the country suffered but also other sectors most notably the auto industry…
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Micro economics individual project
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Historical Perspective US faced one of the most critical recessions of modern history and is also currently going through economic slow down. Due to the credit crunch which emerged in late 2007, not only the financial sector of the country suffered but also other sectors most notably the auto industry of the country suffered a lot. In order to help the auto industry to withstand the challenge and save it from complete collapse, government intervened and provided equity funding to large auto makers in the country. This article is about the role of government in intervening the free market to help organizations to overcome recessionary periods besides keeping demand and supply dynamics in equilibrium.
Why this article is worth writing?
This article published in New York Times on October 13, 2011 is titled as “Auto Bailout Done, Obama Looks for Payback” and has been written by Jeff Zelney.1 Though this article discusses mostly the political side of the Obama Administration and its plans to win the next election however, it critically links as to this has important economic implications too.
After 2007’s recession, two industries were badly affected i.e. the financial services sector as well as the auto industry. US government offered bail out plan to some of the largest automakers in the country in order to make the industry survive the current wave of economic depression. Most notable beneficiaries of the Federal funding included General Motors as well as Chrysler. By allowing these organizations to have equity support, government actually attempted to correct the demand and supply balance within the auto industry.
After receiving support from the government, auto sector responded through downsizing, cutting costs as well as improving their processes. It has been mentioned that the auto industry specially the bigger players in the market are responding to the situation and are slowly coming out of the recessionary conditions. This article therefore clearly mentions that with the help of the government intervention, industry survived one of the most difficult periods in its history.
This article therefore clearly establishes the conditions in two different periods and how the government intervention can actually help organizations to correct the supply and demand mechanics within a free market economy.
Agree or Disagree
In order to reduce the market anomalies as well as lessen the impact of externalities, it is important that the government must intervene in the market. The timely intervention of the government in the market affairs therefore can gradually help the markets to completely collapse. Government intervention therefore can offer the relative stability to the market and become one of the most important economic decisions take by the government to intervene in the market.
Implications
One of the key implications of intervening the market through equity participation into a particular sector by the government may be detrimental for the economy. Since the funds provided to these firms are from tax money therefore public rightly suggests that the tax payers money should be spent wisely. There may be implications for the welfare of the society as it may be argued that the funds may not have been utilized for the greatest good of the society. Read More
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