Answer to Question #112070 in Macroeconomics for Phumzile

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)Policy instruments that can be used are high interest rate and increased reserve requirements for commercial banks.

b) Monetary policies influences inflation and the economy's wide demand for goods and services.The SARB can conduct the nation's monetary policy by managing the level of interest rates and influencing the availability and cost of credit in the economy. Monetary policy directly affects interest rates as it indirectly affects stock prices, wealth, and currency exchange rates.Through these channels, monetary policy influnces employment, and inflation in South Africa.