TY - JOUR AU - Antonio, Mohammad Syafii AU - Ali, Mohammad Mahbubi AU - Jebel Firdaus, PY - 2021/06/30 Y2 - 2024/03/28 TI - The Role of Zakat in Overcoming Inflation and Unemployment: Revisiting the Trade-Off Theory JF - ICR Journal JA - ICR Journal VL - 12 IS - 1 SE - Article DO - 10.52282/icr.v12i1.822 UR - https://icrjournal.org/index.php/icr/article/view/822 SP - 73-97 AB - <p>The present study aims to examine the role of <em>zakat</em> in addressing unemployment and inflation, while also revisiting A.W. Phillips’ trade-off theory. The study adopts a qualitative methodology, using library research to critically analyse how <em>zakat</em> could address unemployment and inflation. The study argues that the optimal application of <em>zakat</em> could overcome the issue of unemployment while maintaining price stability. This is true since <em>zakat</em> can be distributed in two forms: consumptive and productive. Therefore, an increase in aggregate demand will always be followed by a rise in aggregate supply; the distribution of <em>zakat</em> in the consumptive form will increase aggregate demand, while the distribution of <em>zakat</em> for a productive purpose will increase aggregate supply. An increase in aggregate demand would in turn increase production, thus absorbing more labour as a result. This is where <em>zakat</em> addresses unemployment. On the other hand, a rise in aggregate demand will initially inflate the aggregate price. However, since the increase in aggregate demand is simultaneously followed by an increase in aggregate supply due to the distribution of <em>zakat</em> in its productive form, the price remains stable. Aggregate demand and aggregate supply cross at an equilibrium point. More importantly, the price is stable while the quantity of production is at its highest level. The findings of the study serve as a reference point for regulators formulating fiscal policy embedded in the <em>zakat</em> system. <span class="Apple-converted-space"> </span></p> ER -