ECONOMICS
FISCAL POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Unemployment rates would rise
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taxes will rise
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The government would put a freeze on prices
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international trade would stop
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Detailed explanation-1: -The SARB uses interest rates to influence the level of inflation. National Treasury, in consultation with the SARB, sets the inflation target, which acts as a benchmark against which price stability is measured. The SARB then independently makes monetary policy so as to achieve this target.
Detailed explanation-2: -The SARB regulates the interest rates that banks charge consumers, to keep tabs on bank lending and inflation. Banks make a profit from lending money by having an interest rate higher than the repo rate. This is how the increase in the repo rate can affect how much interest you will have on a loan.
Detailed explanation-3: -Because higher interest rates mean higher borrowing costs, people will eventually start spending less. The demand for goods and services will then drop, which will cause inflation to fall. Similarly, to combat the rising inflation in 2022, the Fed has been increasing rates throughout the year.
Detailed explanation-4: -An unwanted side effect of a contractionary monetary policy is a rise in unemployment. The economic slowdown and lower production cause companies to hire fewer employees. Therefore, unemployment in the economy increases.