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ECS3701 Assignment 2 (COMPLETE ANSWERS) Semester 1 2024 (833704) - DUE 29 April 2024
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ECS3701 Assignment 2 (COMPLETE ANSWERS) Semester 1 2024 (833704) - DUE 29 April 2024
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MONETARY ECONOMICS: ECS3701ASSIGNMENT 02
SEMESTER 1 2024
ECS3701 1st semester
Unique number 833704
Due date 29 April 2024
Material All learning Units
QUESTION 2
2.1. Given the global increase in inflation resulting from the Russian invasion of
Ukraine, name and explain the three tools that the South African Reserve Bank
(SARB) can use to decrease inflation.
What adverse effects can these central banks' policies have on the economy?
[10]
The South African Reserve Bank (SARB) has three traditional monetary policy options
at its disposal to reduce inflation that has resulted from the global increase caused by
Russia's invasion of Ukraine: open-market operations, accommodation policy, and
reserve requirements.
Accommodation policy (Repo Rate)
The purpose of accommodation policy is to provide liquidity (borrowed cash reserves)
to banks through repo agreements. The repo rate is the interest rate at which
commercial banks borrow funds from the central bank (SARB) to meet their short-term
liquidity needs. A change in the repo rate amounts to a change in monetary policy
because the repo rate affects interest rates in general. Increasing the repo rate is a
common tool to combat inflation.
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