CH10: Fiscal & Monetary Policy Flashcards
(17 cards)
What are the functions of money?
Medium of exchange, unit of account, store of value, standard of deferred payment.
What are the functions of the South African Reserve Bank (SARB)?
The repo rate through the Bank’s accommodation policy or refinancing system. / Through bank supervision, national payment system management, acting as banker to banks, and issuing currency. / Acts as banker and advisor, manages foreign exchange reserves, and administers exchange control. / Formulation and implementation of monetary policy, service to government, maintaining financial stability.
What causes a shift in the labour supply curve?
Demographic changes, immigration, wage changes in other jobs, job conditions.
What is a double coincidence of wants?
A situation in a barter economy where both parties must want what the other offers to make an exchange.
What is the difference between commodity money and fiat money?
Commodity money has intrinsic value; fiat money has no intrinsic value but is declared legal tender by government.
how does the repo rate influence the economy?
It affects interest rates, credit availability, and ultimately consumption and investment.
what are some drivers of increased government spending?
Changing consumer preferences, political shocks, income redistribution, misconceptions, population growth and urbanisation.
what are the economic classifications of government spending?
Consumption spending and investment spending.
what are the main instruments of fiscal policy?
Government spending and taxation.
what are the two main instruments of monetary policy in sa?
Accommodation policy (repo system) and open market policy (buying/selling government securities).
what is fiscal policy?
Government policy on spending, taxation, and borrowing to influence economic activity.
what is the difference between fiscal policy and monetary policy?
Fiscal policy is controlled by government and involves spending/taxation; monetary policy is controlled by the central bank and involves interest rates/money supply.
what is the purpose of the cash reserve requirement?
To ensure banks hold a minimum percentage (2.5%) of their liabilities as reserves with the Reserve Bank.
what is the role of open market operations in monetary policy?
To influence liquidity by buying/selling financial assets, affecting cash reserves and interest rates.
what is the role of public corporations in the public sector?
To provide essential services like electricity, transport, and water (e.g., Eskom, Transnet, Rand Water).
what is the typical fiscal policy response during a recession?
Expansionary policy: increased government spending and/or reduced taxes to stimulate demand.
what is the typical fiscal policy response during inflationary periods?
Contractionary policy: reduced spending and/or increased taxes to cool down the economy.
