Answer to Question #202120 in Macroeconomics for Kebalepile Mahole

Question

In a recent article on BusinessLive, Duma Gqubule argues that South Africa does not have a real 

central bank. He criticises the conduct of monetary policy and puts forward a range of proposals 

under the umbrella term monetary finance. 

1. Compare his proposals to what you have learned about monetary policy in Chapter 9. You 

can compile a summary table as follows. (12)

The SARB’s way Gqubule’s proposals

The objective of monetary policy

The targets

The way in which policy is 

conducted, and instruments used

2. Represent Gqubule’s reasoning using the AD’-PC model from chapter 7:

2.1 The Covid-19 lockdown as a supply shock only. (6)

2.2 His monetary policy proposals. (6)

2.3 His proposals for what to do when too much money is created. (6)

(all on a single graph, with explanations, please)

Answer 1

1.

2.

The covid 19 lock down results in a higher inflation rate. Given the inflation rate, the central ban responds by choosing real interest rate which determines the unemployment rate through the IS curve. When inflation rate is high the government reduces money supply, interest rates increase and unemployment increases too.