You have been appointed as the governor of the South African Reserve Bank. One of your roles is to be the head of the committee that decides what form the tools used to implement monetary policy should take. A collaborative economic report by the central bank’s economists indicates the following:
- The CPI and the PPI are
- The country’s exports of platinum, maize and fresh produce are on the
- The employment rate is expected to decrease.
- The GDP is expected to the subsequent increase in the price of imported goods
Discuss what monetary policy should be implemented by the central bank’s committee. Explain how this policy will affect interest rates, consumption and spending of consumers and businesses across the country.
Answers to Above Questions on Monetary Policy:
The formulation of monetary policy by the Reserve Bank requires them to consider many such factors that have a direct implication on the performance of the economy. In the given case scenario of the South African Reserve Bank, they are required to take into consideration the important factors such as consumer price index and producer price index, the economic performance in terms of export by the South African economy, GDP growth rate, employment rate and many such economic indicators while formulating the monetary policy.
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