Answer to Question #124007 in Macroeconomics for Sibusisiwe Buthelezi

Question

Financing the government’s support package is a contentious issue. Part of it is to come from reprioritisation of spending, part from an IMF loan and part from new debt issued in the local bond market. Some have suggested that the Reserve Bank should simply print the money. Apply the augmented Philips curve policy lesson to the suggestion that the SARB prints the money. Make use of graphs and explain what the impact might be on output and inflation.

Answer 1

 If the Reserve Bank simply print the money, money will be more. The rosult of this action hyperinflation.

New investment will stimulate economy, creating new work place. But in long term will be great inflation. If government stimulates economy through an IMF loan and new debt issued in the local bond market, it does not increase money suply but still increase work place.