Question

Respond to the following in a minimum of 175 words:

• Can government intervention in markets sometimes make the situation worse? Provide examples in your response. For example, consider the progress of the economy of Venezuela since 2000.

Answer 1

Answer:
Yes government intervention in market sometime make the situation worse. Instead of improving the economic health and trade balance of the economy it further deteriorates it.
For instance taking the case of Venezuela, its economy was mostly controlled by the government. Most of its major companies like oil refining companies, and other big companies were state owned. And government used to create rule keeping those companies in mind. Even exchange rate of Venezuela was fixed, with the passes of time its trade starts decreasing due to various US sanction which should have deteriorated the economy because trade balance was negative, but government decided to control it, so they kept constant and very string exchange rate of their currency with dollar. This created arbitrage in their economy and people started purchasing dollar from their economy at much cheaper rates then outside market which finally leads to collapse of the whole economy. If Government would not have intervened kept it flexible the economy would not have collapse, growth would have been decreased though.

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