To understand what it means for a government to control its economy, a proficient understanding of what an economy itself is also necessary. An economy is the system through which goods and services are produced, distributed, and consumed within a country. Government control over an economy is the amount of control the government has over what is produced, distributed and consumed. On one end of the spectrum is the market economy, where economic activity is unplanned and decided through supply and demand, with private individuals owning the means of production (1). On the opposite end is the command economy, where a centralized government owns most businesses and decides what gets produced, at what price, and even where citizens work (1). In between sits the mixed economy, which is a system where free markets coexist with government intervention through state-owned enterprises, regulation, and tax policies (2).
Government control isn’t just like one tool that the government has control over, theirs many tools that the government uses to control the economy. The two primary tools are fiscal policy, which uses government spending and taxation to influence the economy, and monetary policy, run by a country’s central bank to manage interest rates and the money supply (3). For example, a country that wishes to stimulate growth may lower interest rates and cut taxes, while a country trying to slow inflation may do the opposite. Alongside these are regulations by the government such as minimum wage laws, which are industries the government directly operates, such as public healthcare or postal services (4). The degree to which these tools are used varies massively between countries, which is what ultimately determines where each country is on the economic spectrum.
1. Investopedia — *Market Economy vs. Command Economy: What’s the Difference?* — https://www.investopedia.com/ask/answers/100314/whats-difference-between-market-economy-and-command-economy.asp
2. Britannica — *Mixed Economy* — https://www.britannica.com/money/mixed-economy
3. Britannica — *Fiscal vs. Monetary Policy: What’s the Difference* — https://www.britannica.com/money/fiscal-vs-monetary-policy
4. Wikipedia — *Mixed Economy* — https://en.wikipedia.org/wiki/Mixed_economy
5. Statistics Canada — https://www.statcan.gc.ca/en/start
