Answer to Question #206000 in Macroeconomics for Keneilwe Motsepe

Question

The primary effect of an increase of repo rate is decrease in Y and a positive effect on the current account

Answer 1

The statement is

True

The repo rate is high during inflation therefore the central bank lends Money to the commercial banks so that there is decreased money supply into the economy. The government income, Y thus decreases.

The interest rates for saving in the banks also increase to encourage more people to save. There is therefore a positive impact on the current accounts.