Societies of different evolution, size and political systems seek to solve their basic economic problems of determining how to meet the market's unlimited needs through limited resources, and society's economic issues are addressed through its economic system, which means the range of institutional relationships and actions through which it attempts to solve the underlying economic problem.
Basic ways to solve economic problems:
Problems such as unequal distribution of natural resources, technological advancement, lack of human and other specialization hamper the production of goods and services in the economy. All economic systems use two important ways to solve their fundamental problems:
Free Price Mechanism:
The free price mechanism depends on determining the price by the contribution of individuals within the economy, and the price is determined by the forces of supply and demand in the market, far from the intervention of the state.
Controlled Price System:
This method is based on determining the price of goods and services when the quantity required becomes equal to the amount offered, making it easier to determine resource allocation, determine the level of savings, consumption and production, and use the price mechanism mainly in the capital economy.
Key solutions to tackle the economic crisis:
Solutions to economic crises are a set of policies that must be pursued:
Fiscal policy:
This policy is based on the influence on demand. Expenditure policy or taxes are changed, for example, the reduction of income tax, which in turn helps to increase residual income and thus encourage spending.
Monetary Policy:
A policy in which the central bank influences supply and monetary demand. For example, lowering interest rates is a successful policy for solving economic crises, making borrowing cheaper, as well as increasing the income available to companies and households that in turn leads to increased spending.
Supply-side policies:
This policy is a long-term policy aimed at improving the economy's productivity and efficiency. Examples include supply-side policies in the free market (based on limiting government intervention in the economy), or intervention policies (e.g. government expenditure on education and training).
IMF bailout:
IMF provides funds to help countries restore confidence and take structural adjustment measures such as improved tax collection, privatization and price liberalization.
Government bailout of industries/banks:
applied in order to avoid loss of confidence in the financial sector.
Ways to solve basic problems of economic systems:
Economic regulations were numerous and each system adopted a different mechanism for dealing with crises:
Solving fundamental problems in the capital economy:
The capital economy is concerned with the allocation of different resources and the determination of the prices of different goods and services, including the price of factors of production through the forces of supply and demand Free price mechanism also helps producers determine what to produce, Increasingly demanded goods and services that consumers can afford to spend more on are produced in larger quantities of low-demand goods and services and the cost of various production elements helps to choose production techniques or procedures as a rational product seeks to use variables or processes that have a lower price on the market.
Solving basic problems in the socialist economy:
Government plays an important role in decision-making in the socialist economy undertaking to plan, monitor and organize all major economic activities to solve basic economic problems, The Central Planning Agency formulates and implements all major economic policies the central planning authority determines the nature of the goods and services to be produced according to available resources and the State's priority, The country's main objective is growth, equity and price stability. and the Government's implementation of certain fiscal policies such as fiscal policy in the socialist economy, Expenditure policy, public debt policy or deficit financing policy to meet targets.
Solving basic problems in the mixed economy:
Both of the above economic systems have particular disadvantages, as a result of which a new economic system known as the mixed economy has emerged as a combination of the above two systems. and the mixed economy is described as an economic structure in which the private and public sectors coexist and cooperate for the benefit of the State. All economic difficulties in such regulations are resolved with the help of free price mechanisms and controlled prices (economic planning).
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