Answer to Question #112277 in Macroeconomics for Kgothatso

Question

2.3Assuming 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. There are  three instruments of monetary policy are open market operations, the discount rate and reserve requirements.

Open market operations involve the buying and selling of government securities. The term “open market” means that the Fed doesn’t decide on its own which securities dealers it will do business with on a particular day. Rather, the choice emerges from an “open market” in which the various securities dealers that the Fed does business with – the primary dealers – compete on the basis of price. Open market operations are flexible, and thus, the most frequently used tool of monetary policy.

https://www.federalreserveeducation.org/about-the-fed/structure-and-functions/monetary-policy

B.