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Main article: Economics

Assignment problem in economic means the different economic issues inside an economic entity. These economic issues have their correspond solutions by using different economic policies. In the following article there will be an explanation of different economic problems and the economic policies as well as the solution of the economic issues that are mentioned in the article. In addition, the goals of economic policy and history of the use of economic policy will be explained detailly.

In specific, there are six main economic problems in the macroeconomic, including inflation, unemployment, economic growth, stagflation, trade cycle, exchange rate and balance of payment.

Inflation means the common increase in the price of goods and production cost in the market which is the opposite circumstances of the deflation. When inflation occur large proportion of the people will lose while a small proportion of people will gain from it. Therefore, the will be a change in the distribution of income.

The issue of unemployment means the human resources that does not voluntary idleness for jobs. When the issue of unemployment occurs, the output of actual will be lower than the potential output of a society.

Economic growth means the trend of the growth of the total output in the long-term of a country. It reflects in the enlarge of the capacity of production in the society, including increase in economic activity such new factories are being set up. The economic growth rate is calculated by the annual rate of raise in the income per capita. In addition, there are three main sources which consist of the economic growth, including technological progress, increase in labor force and the formation of capital.

Stagflation is the opposite of inflation which means the economy is stagnant with a slow growth rate in economic and high rate in unemployment. In other words, stagflation is the decrease in the gross domestic product (GDP) of a country and the price of commodities will raise concurrently.

Trade cycle means the undulate of cyclicity in the business and economic activities. For instance, the increase or decrease in the employment rate and output over a specific period is an example of trade cycle. In a trade cycle, the good trade period will exist and shift to bad trade period as well as the economic boost period with high level of employment rate will shift to recession period accompany by high level of unemployment rate.

The balance of payments is the structured record for the total economic activity transaction between all overseas countries in the world and the own country within a year of accounting. These transactions will be affected by the exchange rate of currency. Exchange rate is the rate that a country’s currency exchanged to another country’s currency. If a country’s exchange rate fall to another country the export of that country will increase as other countries can now obtain more amount of money.

Besides, economic policy includes three major types which are Monetary policy, Fiscal policy and Supply-side policy. Monetary policy is the central bank change the interest rate and alter the supply of money which ordinarily affect the rate of inflation. Beside, Fiscal policy is the alter in taxation rate, government spending and transfer payment. Supply side policy focus on enhance the production capacity of an economy. ^[1]In addition, both Fiscal and Monetary policy have two sides which is expansionary and contractionary and brings opposed effect. Expansionary aims to stimulate the economy while contractionary reduce economic activity to cool down the economy which is the contrary of expansionary policy.

Understanding of different economic policies

It is necessary to understanding the concept of different economic policies first in order to help better comprehension of how can economic policies solve assignment problems. The most common economic policies that use by countries to solve economic problems can be divided into three different types:

-Macroeconomic stabilizer policy (Monetary Policy& Fiscal Policy)

-Trade policy

-Economic policies that helps enhance economic growth

Economic growth graph

Macroeconomic stabilizer policy includes monetary policy, fiscal policy and supply-side policy. Monetary Policy is the central bank changing the money supply and alter the interest rates in order to change the inflation rate. On the other hand, fiscal policy is the government change the taxation rate and the amount of government spending. Moreover, supply-side policy focus on boosting the production capacity by increasing aggregate supply of an economy.

However, monetary policy and fiscal policy have both expansionary and contractionary side. Expansionary means to boost the economy while contractionary aims to decrease economic activity to cooling the economy which is the opposite of expansionary policy .

Trade policy is the control and treaty between countries to regulate the imports and exports to overseas. For instance, CAFTA and NAFTA are agreements between countries for trading.

There are a variety of economic policies that helps enhance economic growth, including demand side policy and devaluation. Demand side policy means to boost the aggregate demand of an economy when a recession period is occurred. The increase in demand will improve the quantity demanded in an economy. Therefore, the rate of economic growth will be increase.

Besides, devaluation means to depreciate the exchange rate of the currency of a country. It helps to improve the competitiveness of the local producers in overseas market, leading to a lower price of exports goods. For instance, Iceland and Argentina used devaluation to recover their economy. However, this will cause a higher price in import goods and decrease the living standard.

How Fiscal Policy & Monetary Policy works

Fiscal policy and monetary policy are two most important policies for solving assignment problems.

Fiscal policy is the government change the taxation rate, government spending and transfers payment. It can be divided into two different type which is expansionary fiscal policy and contractionary fiscal policy. Expansionary fiscal policy usually used in the recession period of an economy to help the to stimulate and recover the economy. Expansionary fiscal policy reduces the rate of taxation and increase government spending and which will leading to an increase in household spending and government expenditure. On the other hand, contractionary fiscal policy increases the taxation rate, reduce the government expenditure and decrease the transfer payment. Contractionary fiscal policy is used in the boost period of an economy. It will cause a decrease in the household spending, government expenditure and transfer payment which will cool down the economy.

Monetary policy is the central bank change the money supply and the interest rate to affect the rate of inflation. It can be divided into two types, including expansionary monetary policy and contractionary monetary policy. Expansionary monetary policy has the similar effect as expansionary fiscal policy. It usually used during the recession period of an economy to help the to stimulate the economy. In expansionary monetary policy the central bank will increase the money supply and reduce interest rate, leading to the willingness of spending increase and encourage more investment. Therefore, the total aggregate demand in the market will raise cause the improve in economic growth. Besides, in contractionary monetary policy the central bank will decrease the money supply and increase interest rate which can be used in the boost period in an economy to cool down the economic activity. Eventually the willingness of household spending will fall and the investment in the market will be eliminated.

The applied of fiscal policy and monetary policy for solving assignment problem are mentioned in the next paragraph.

Policies to solve the assignment problem

The six major assignment problem (inflation, unemployment, economic growth, stagflation, trade cycle, exchange rate and balance of payment) need use different policies to deal with or eliminate the effects to the economy and the society. However, economic growth, stagflation, trade cycle, exchange rate and balance of payment has no policies can cure and those problem will exist permanently. In the paragraph, the solution of the issue of inflation and unemployment will be outlined.

World inflation rate

Inflation is the raise in the price of commodities and cost of production which will reduce the living standard of household. Government can use the contractionary monetary policy, tight (contractionary) fiscal policy and the supply side policy to decrease the inflation rate. Contractionary monetary policy will bring high interest rate which will raise the interest of borrowing money from the bank and decrease the willingness of spending and investment in the market, leading to a slower growth rate of economic and slower inflation rate in a country. Besides, the tight fiscal policy (contractionary fiscal policy) will increase the taxation rate and decrease the government spending which will reduce the disposable income of household and a fall in the aggregate demand. Eventually, a slower economic growth will exist and the inflation cause by demand-pulled will decrease. In addition, the supply-side policy will encourage the deregulation and privatization which will decrease the cost of the operation of business, leading to a slower rate of inflation as well as the competitiveness will raise.

World unemployment rate

Unemployment is the human resources which does not voluntary idleness for works. Several policies that can be applied to eliminate the unemployment rate, such as expansionary monetary policy, expansionary fiscal policy, education and training to workers as well as the subsidies for firms. Expansionary monetary policy will reduce the interest rate which will encourage the willingness of spending and new investments as well as the sets up of new businesses, leading to the aggregate demand and the number of jobs in the market increase. In addition, expansionary fiscal policy will cut the taxes and government increases its spending which will increase the disposable income of household and encourage the household spending in the market as well as increase the economic activities. Eventually, the aggregate demand will increase and falling the unemployment rate. Education and training to workers means to provide training of new skills and knowledge to workers who are unemployed in order to help them to find jobs.Subsidies for firms imposed by the government can help businesses to reduce their production and operation cost, leading to the firms to invest money in the areas which are depressed.

Goals of economic policy to solve assignment problems

Economic policy has four targets, including stabilize the market, maintain economic prosperous, encourage firms development and ensure employment rate in appropriate level. In addition, this is the assignment problem that the government need to choose and comparing the policy tools in order to reach the goals of economic growth However, there are difficulties for the government to set goals in order to solve the assignment problem, such as the problem of inflation and unemployment. In the short- term period, the government and reserve banks will reduce the amount of target for achieved. For example, to decrease the unemployment and inflation rate the stability of currency should be retained. However, normally with the decrease in unemployment rate and inflation rate, the interest rate will raise.

In general, the government will use several methods to achieve the goals of economic policy to solve assignment problems. These methods include the exchange rate, taxation level, supply of money, tariff of imports and the interest rate etc.

History of use of economic policy to solve assignment problems

The use of economic policy to solve assignment problems history can be divided into three different period, including the nineteenth century, the progressive era and the great depression. Firstly, the nineteenth century period is the start of the industrialism and capitalism with a revolution occur in the 1860’s. Industrialization is the transform of economic structure by the society is changed from the pre-industrial to the industrial type. Capitalism is the system that allowing people to have the own right on private property, such as the private ownership in some specific capital and resource by the country’s decision making of the market operation.

The progressive era is the period between 1893 and 1897 which is a depression in economics and several economic policies have been used to solve this assignment problem, including fiscal policy, laissez-faire and tariffs. Laissez faire is the government policy that the private party transactions can be except from taxations and subsidies from the government as well as to control the monopoly party’s behavior in order to protect the right of private properties away from hostility. Tariff is the government impose tax on import and export commodities from overseas countries in the world.

The Great Depression period is the depression of economy in the United States from 1933 to 1936, the method of regulation political and realignment has been applied. Regulation is the law that create by government in order to restrict the behavior of people in a specific organization and can control the actions of businesses and firms. Political realignment is the significant change in the system or science of political of a state or country.