Government Intervention and Finance

Abstract

There is significant government intervention in financial markets. The economic theory of the state or regulation does not provide unique and generally accepted principles. There are many approaches. Finance is singled out for regulation because financial entities provide services instead of goods for final consumption, creating the impression that financial institutions are merely intermediaries that do not add to out-put. In addition, financial crises have been accompanied by declines in production and rising unemployment. This chapter provides a comprehensive review of these approaches to regulation that helps to understand the issues relating to financial regulation. The final sections elaborate the reasons for existence of financial markets and their role in economic growth. An appendix introduces present value concepts.