Title

English Assignment

The Effect of Government’s Policies on Social Sector

Compiled by :

Sherylin Sirait

1006691635

Faculty of Economic

University of Indonesia

The Effect of Government’s Policies on Social Sector

Inflation is a large part in the economic well being of a country along with the social well being. The definition of inflation is the general increase in the prices of goods and services in an entire economy over time. Fortunately, inflation is a stoppable process unless it has gone too far. There exist several methods that can be implemented to stop inflation. Government influences inflation rates by implementing different monetary policies and by setting bank interest rates. However, government’s policies related to inflation have various effects on social sector.

If inflation is high, it is invariably necessary to slowdown the economy to reduce inflation. There are no easy ways to reduce inflation. To reduce inflation will require tight Monetary policies. First policy is reducing aggregate demand and reduce inflationary pressures. However, these will cause a slowdown in growth and rise in unemployment. Nevertheless, this slowdown is only temporary and after inflation has been reduced and people expect lower inflation, the economy will be able to expand creating low unemployment and low inflation.

Another way to lower the inflation rates is by controlling the money supply. Government alters the "money supply" to try and manage the economy. The trouble is, no one is quite sure how much money is necessary and how it is actually used once it is available. This causes economists endless debate. Simply put, the Central Bank creates more money by printing it. This makes interest rates lower, because more money is available to lenders and borrowers alike. If the supply of money is lowered, this "tightens" monetary policy and causes interest rates to rise. 

Government acts on inflation by targeting interest rates through the reserve...