Answer to Question #145127 in Macroeconomics for December

Question

7. We can expect that the amount of money that a bank create will decrease when…
[1] more bank clients choose to deposit their funds at the bank.
[2] the bank's clients choose to hold a smaller part of their money in the form of cash.
[3] the bank borrows from the South African Reserve Bank.
[4] the South African Reserve Bank increases the repo rate.

Answer 1

Answer: The amount of money a bank can create decreases when the South African reserve bank increases the repo rate. Increasing the repo rate discourages banks from borrowing money from the central bank causing a reduction in the economy's money supply. The reserve bank uses this method to curb inflation.