(a) Allocation of Resources : To allocate resources in line with social and economic objectives, Government provides more resources into socially productive sectors where private sector is not involved eg. sanitation, water supply, rural development, education, healthetc. More-overGovernment allocates more funds for the production of socially useful goods and draws away resources from some other sectors to promote balanced economic growth of different regions. Moreover Government also undertakes production directly when necessary.
(b) Economic Stability : Government can bring economic stability i.e. can control fluctuations in general price level through taxes, subsidies and expenditure. For instance, when there is inflation, government can reduce its own expenditure and when there is depression characterized by falling output and prices, government can reduce taxes and grant subsidies to encourage spending by people.