ECS3701
EXAM
PACK
2026
, lOMoARcPSD|66551144
Page 3 of 4 ECS 3701
Oct/Nov 2025
ANSWER ALL FIVE QUESTIONS
Question 1 [20 marks]
1.1 Explain the transmission mechanism of monetary policy. [2]
1.2 There are different channels or transmission mechanisms of monetary policy. Which of these
transmission mechanisms is the most important? Provide 3 reasons to support your answer.
[5]
1.3 Indicate whether each of the following statements is true (T) or false (F) [13]
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 three tools that the South African Reserve Bank (SARB) uses can only be used to
reduce inflation.
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) Open Market Operations is not one of the tools that the South African Reserve Bank
(SARB) uses.
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.
11) The money multiplier tells us how much monetary base changes given a change in the
money supply.
12) Money cannot be referred to as money supply as they have different definitions.
13) The independence of the South African Reserve Bank means that it is unlikely to focus
on the long-term objectives but seeking short-term solutions.
messages.downloaded_by
EXAM
PACK
2026
, lOMoARcPSD|66551144
Page 3 of 4 ECS 3701
Oct/Nov 2025
ANSWER ALL FIVE QUESTIONS
Question 1 [20 marks]
1.1 Explain the transmission mechanism of monetary policy. [2]
1.2 There are different channels or transmission mechanisms of monetary policy. Which of these
transmission mechanisms is the most important? Provide 3 reasons to support your answer.
[5]
1.3 Indicate whether each of the following statements is true (T) or false (F) [13]
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 three tools that the South African Reserve Bank (SARB) uses can only be used to
reduce inflation.
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) Open Market Operations is not one of the tools that the South African Reserve Bank
(SARB) uses.
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.
11) The money multiplier tells us how much monetary base changes given a change in the
money supply.
12) Money cannot be referred to as money supply as they have different definitions.
13) The independence of the South African Reserve Bank means that it is unlikely to focus
on the long-term objectives but seeking short-term solutions.
messages.downloaded_by
