ECS3701
EXAM PACK
, lOMoARcPSD|18222662
Page 3 of 5 ECS 3701
May/June 2025
ANSWER ALL FIVE QUESTIONS
Question 1 [20 marks]
1.1 Explain the transmission mechanism of monetary policy. There are different channels or
transmission mechanisms of monetary policy. Which one is most effective and why? [6]
1.2 Which one of the transmission mechanisms of monetary policy is the most important channel?
Provide 3 reasons to support your answer. [4]
1.3 Indicate whether each of the following statements is true (T) or false (F) [10]
1) The government authorities in charge of monetary policy are the central banks.
2) The action of the Reserve Banks in changing the repo rate will cause changes in the
demand-side inflation.
3) Reserve Banks can only conduct open market operations but not influence the reserve
requirement ratio.
4) Money supply is positively related to the amount of excess reserves.
5) The money multiplier tells us how much the monetary base changes given a change in
the money supply.
6) In a barter economy, transaction costs are relatively low because people need to satisfy
a double coincidence of wants.
7) Money has different primary functions in an economy when money is shells, gold, or
paper.
8) Money cannot be referred to as money supply as they have different definitions.
9) Financial intermediaries allow small savers and borrowers to benefit from the existence
of financial markets.
10) One solution to the problem of high transaction costs is to bundle the funds of many
investors together so that they can take advantage of economies of scale.
, lOMoARcPSD|18222662
Page 4 of 5 ECS 3701
May/June 2025
Question 2 [20 marks]
2.1 If you suspect that a company will go bankrupt next year, would you rather hold bonds issued
by the company or equities issued by the company? Why? [4]
2.2 List the 4 important information found on a coupon bond. [4]
2.3 Differentiate between coupon bonds and zero-coupon bonds. [2]
2.4 Discuss how collateral and indirect finance are used in explaining the basic facts about
financial structure around the world. [10]
Question 3 [20 marks]
Given the two-pot retirement fund system instituted on 1st September 2024, many people are likely
to cash out of their savings pot. Explain the effects of this action on the inflation in the economy
through the following:
(a) Consumer spending [5]
(b) Money supply [5]
(c) Long-term savings [5]
(d) Reserve Bank response [5]
Question 4 [20 marks]
4.1 Standard Bank receives an extra R500 of reserves but decides not to lend out any of these
reserves. How much deposit creation takes place for the entire banking system? Explain your
answer. [2]
4.2 (a) List and describe all the players in the money supply process. [6]
(b) Indicate the variables through which each player primarily influences money supply. [5]
(c) Who plays the most important role? [2]
4.3 One of the two ways in which the government can finance its deficit is through printing money.
Explain this method of government financing in detail, and what happens to the monetary base
and money supply. [5]
, lOMoARcPSD|18222662
Page 5 of 5 ECS 3701
May/June 2025
Question 5 [20 marks]
5.1 True or false, inflation targeting requires the Central Bank to focus solely on one key variable
or use one policy action? Provide TWO reasons to support your answer. [6]
5.2 Mention and explain the two types of monetary policy mandates. [6]
5.3 Which of the two types of mandates is better for a central bank? Explain. [3]
5.4 Why is a public announcement of numerical inflation rate objectives important to the success of
an inflation-targeting central bank? [5]
©
UNISA 2025
EXAM PACK
, lOMoARcPSD|18222662
Page 3 of 5 ECS 3701
May/June 2025
ANSWER ALL FIVE QUESTIONS
Question 1 [20 marks]
1.1 Explain the transmission mechanism of monetary policy. There are different channels or
transmission mechanisms of monetary policy. Which one is most effective and why? [6]
1.2 Which one of the transmission mechanisms of monetary policy is the most important channel?
Provide 3 reasons to support your answer. [4]
1.3 Indicate whether each of the following statements is true (T) or false (F) [10]
1) The government authorities in charge of monetary policy are the central banks.
2) The action of the Reserve Banks in changing the repo rate will cause changes in the
demand-side inflation.
3) Reserve Banks can only conduct open market operations but not influence the reserve
requirement ratio.
4) Money supply is positively related to the amount of excess reserves.
5) The money multiplier tells us how much the monetary base changes given a change in
the money supply.
6) In a barter economy, transaction costs are relatively low because people need to satisfy
a double coincidence of wants.
7) Money has different primary functions in an economy when money is shells, gold, or
paper.
8) Money cannot be referred to as money supply as they have different definitions.
9) Financial intermediaries allow small savers and borrowers to benefit from the existence
of financial markets.
10) One solution to the problem of high transaction costs is to bundle the funds of many
investors together so that they can take advantage of economies of scale.
, lOMoARcPSD|18222662
Page 4 of 5 ECS 3701
May/June 2025
Question 2 [20 marks]
2.1 If you suspect that a company will go bankrupt next year, would you rather hold bonds issued
by the company or equities issued by the company? Why? [4]
2.2 List the 4 important information found on a coupon bond. [4]
2.3 Differentiate between coupon bonds and zero-coupon bonds. [2]
2.4 Discuss how collateral and indirect finance are used in explaining the basic facts about
financial structure around the world. [10]
Question 3 [20 marks]
Given the two-pot retirement fund system instituted on 1st September 2024, many people are likely
to cash out of their savings pot. Explain the effects of this action on the inflation in the economy
through the following:
(a) Consumer spending [5]
(b) Money supply [5]
(c) Long-term savings [5]
(d) Reserve Bank response [5]
Question 4 [20 marks]
4.1 Standard Bank receives an extra R500 of reserves but decides not to lend out any of these
reserves. How much deposit creation takes place for the entire banking system? Explain your
answer. [2]
4.2 (a) List and describe all the players in the money supply process. [6]
(b) Indicate the variables through which each player primarily influences money supply. [5]
(c) Who plays the most important role? [2]
4.3 One of the two ways in which the government can finance its deficit is through printing money.
Explain this method of government financing in detail, and what happens to the monetary base
and money supply. [5]
, lOMoARcPSD|18222662
Page 5 of 5 ECS 3701
May/June 2025
Question 5 [20 marks]
5.1 True or false, inflation targeting requires the Central Bank to focus solely on one key variable
or use one policy action? Provide TWO reasons to support your answer. [6]
5.2 Mention and explain the two types of monetary policy mandates. [6]
5.3 Which of the two types of mandates is better for a central bank? Explain. [3]
5.4 Why is a public announcement of numerical inflation rate objectives important to the success of
an inflation-targeting central bank? [5]
©
UNISA 2025
