ECS3701 Assignment 2 (100% COMPLETE ANSWERS) Semester 1 2025 - DUE 9 May 2025

Monetary Economics - ECS3701 Assignment 2 Semester 1 2025 - DUE 9 May 2025 ;100 % TRUSTED workings, Expert Solved, Explanations and Solutions. For assistance call or W.h.a.t.s.a.p.p us on ...(.+.2.5.4.7.7.9.5.4.0.1.3.2)........... 1. Read the following excerpt from News24 below and answer the questions that follow. The inflation and inflation expectation is better today; we lowered borrowing costs and this will support economic activity. However, risks to domestic inflation and growth have risen markedly since the start of the year,” Kganyago said. The South African Reserve Bank kept the key interest rate unchanged at 7.5% last month after three successive 25 basis point cuts because of the extreme levels of uncertainty as trade tensions escalate. “With the recent softening in inflation, the Sarb has cut interest rates by a cumulative 75 basis points since September 2024, reducing the degree of policy restrictiveness,” the central bank said in a statement on X. “Given the upside risks over the medium-term horizon, the current monetary policy stance is deemed appropriate.” Source: Uncertainty risks higher rates, says Reserve Bank A) According to this excerpt, with the recent monetary policy stance on keeping the repo rate unchanged, what effect will this have on the economy. Will this monetary policy approach have a positive, negative or a more neutral effect on the economy? Explain your answer. B) Given the interest rates cut in the previous months, do you think the South African Reserve Bank (SARB) took a good decision to now keep rates on hold due to global trade tensions and uncertainty? Explain your answer through the transmission mechanism and discussing how interest rates cut affect trade and therefore aggregate output and price stability. 2. What is nominal anchor? Explain the two ways in which a credible nominal anchor can be beneficial. 3. Classify each of the following as either a policy instrument or an intermediary target. Explain your answer. A) Long-term interest rates B) Central bank interest rates C) M2 D) Reserve requirements E) Employment rates 4. Differentiate between the main factors in the initiation of financial crises between the advanced and emerging market economies. 5. The two ways in which government can finance its deficit is through monetizing the debt and printing money. Explain each of these two ways in detail and what happens to monetary base and money supply.