ECS3701 Assignment 2 (DETAILED ANSWERS) Semester 1 2024 - DISTINCTION GUARANTEED Answers, guidelines, workings and references .................... 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] 2.2 During the Covid-19, as much as economic activities and inflation generally declined, supply also declined, which prompted an increase in inflation in some cases. Explain the two main causes of inflation in any economy. Provide empirical evidence to support your answer. [10] 2.3 The two ways in which government can finance its deficit are through monetizing the debt and printing money. Explain each of these two ways in detail and what happens to the monetary base and money supply. [10] 2 2.4 Differentiate between goal independence and operational independence of a central bank. Which independence does the SARB have? Explain. [5] 2.5 Explain intermediate targets in monetary policy. [5] 2.6 Classify each of the following as either a policy instrument or an intermediary target. Explain your answer. [10] a. Long-term interest rates b. Central bank interest rates c. M2 d. Reserve requirements e. Employment rates
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