Answer to Question #109963 in Macroeconomics for kgothatso

Question

Assuming that South Africa economy experience a high level of inflation. The SARB makes use of monetary policy to decrease the inflation rate.
a. Mention one of the instruments of monetary policy and describe how the SARB will manipulate it.
b. Explain by the use of graphs, the impact of such monetary policy on aggregate output. In your explanation, describe the interaction between the Money market, IS-LM and AD-AS Model.

Answer 1

a. The main common instruments of monetary policy are:

1) a change in the required reserve ratio (Changing the required reserve ratio affects the profitability of credit institutions. So, in the case of an increase in required reserves, there appears to be a shortfall in profit. Therefore, according to many Western economists, this method serves as the most effective anti-inflationary measure);

2) a change in the discount rate (refinancing rate);

3) open market operations.

b.

https://www.khanacademy.org/economics-finance-domain/ap-macroeconomics/ap-financial-sector/monetary-policy-apmacro/a/monetary-policy

https://web.archive.org/web/20180428050042/https://www.resbank.co.za/MonetaryPolicy/Pages/MonetaryPolicy-Home.aspx