Answer to Question #143254 in Macroeconomics for lesego

Question

Explain, using the AD‐AS model, how the South African Reserve Bank (SARB) can use accommodation policy as a tool to recover from the negative effects of this COVID‐19 pandemic.
Your answer must include the following: The description of the type of monetary policy required How the accommodation policy tool will be utilized An explanation of how the implementation of this tool will work their way through the economy to achieve the desired effect;
The AD‐AS graph showing the implications of your recommendations

Answer 1

The South African Reserve Bank (SARB) has been on the front line in the fight against pandemic COVID-19 as far as the economy of South Africans is concerned. The Bank implemented an expansionary monetary policy that was aimed at increasing the supply of money into the economy and that is, buying of government bonds. Through the SARB, South Africa has managed to buy government bonds in the secondary market basically to decrease market efficiency. Currently, the realized purchase stand at about South African Rand R25 that improved the Gross Domestic Product GDP by 0.6% elevating the economy from crisis levels.

 The impact of buying governments can be described by Aggregate Demand and Aggregate Supply Curve that indicates the dynamics that arise from an increased supply of money to citizens. An increase in the supply of money that can be represented by an increase of Aggregate Supply Curve has a corresponding effect of increasing the purchasing power of people. The Aggregate Demand curve will shift from left to right