, ECS3701 Assignment 2 (COMPLETE ANSWERS) Semester 1 2025 - DUE 9
May 2025;100% CORRECT AND TRUSTED SOLUTIONS
(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.
[5]
The decision by the South African Reserve Bank (SARB) to keep the
repo rate unchanged is generally considered a neutral monetary policy
stance. It neither stimulates nor contracts economic activity significantly
in the short term.
Explanation:
1. Signal of Stability: By keeping the repo rate unchanged, the
SARB is signaling that it is taking a wait-and-see approach in
response to prevailing economic conditions. This may create a
sense of policy predictability, which helps maintain investor and
consumer confidence, especially in an uncertain economic
environment.
2. Impact on Borrowing and Spending: An unchanged repo rate
means that interest rates on loans and credit are also likely to
remain stable. This implies that there will be no immediate
increase or decrease in household or business borrowing. As a
result, aggregate demand is not directly stimulated or restricted,
suggesting a neutral impact on economic growth.
3. Inflation Control: Keeping the repo rate constant also suggests
that inflation is under control or within the target range (3%–
6%), and that there is no urgent need to either tighten or loosen
monetary policy.
4. Uncertainty Management: In a context of global trade tensions or
geopolitical risks, an unchanged rate provides policy prudence,
avoiding the risks of excessive expansion (which could fuel
inflation) or contraction (which could stifle growth).
May 2025;100% CORRECT AND TRUSTED SOLUTIONS
(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.
[5]
The decision by the South African Reserve Bank (SARB) to keep the
repo rate unchanged is generally considered a neutral monetary policy
stance. It neither stimulates nor contracts economic activity significantly
in the short term.
Explanation:
1. Signal of Stability: By keeping the repo rate unchanged, the
SARB is signaling that it is taking a wait-and-see approach in
response to prevailing economic conditions. This may create a
sense of policy predictability, which helps maintain investor and
consumer confidence, especially in an uncertain economic
environment.
2. Impact on Borrowing and Spending: An unchanged repo rate
means that interest rates on loans and credit are also likely to
remain stable. This implies that there will be no immediate
increase or decrease in household or business borrowing. As a
result, aggregate demand is not directly stimulated or restricted,
suggesting a neutral impact on economic growth.
3. Inflation Control: Keeping the repo rate constant also suggests
that inflation is under control or within the target range (3%–
6%), and that there is no urgent need to either tighten or loosen
monetary policy.
4. Uncertainty Management: In a context of global trade tensions or
geopolitical risks, an unchanged rate provides policy prudence,
avoiding the risks of excessive expansion (which could fuel
inflation) or contraction (which could stifle growth).
