Monetary Policy in South Africa

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What is the primary purpose of a bank's cash reserve requirement?

To maximize profits by lending out as much money as possible

To satisfy the needs of depositors' withdrawals (correct)

To increase the interest rate on deposits

To reduce the risk of inflation

What happens to the money when a depositor withdraws cash from their account?

The bank lends out more money to make up for the loss

The bank's cash reserve is depleted (correct)

The bank increases its interest rates

The bank reduces its cash reserve requirement

What is the result of the government running a budget deficit and borrowing from the South African Reserve Bank (SARB)?

A decrease in the money supply

An increase in the repo rate

A reduction in the cash reserve requirement

An injection of cash into the banking system (correct)

What is the primary trigger for money creation in the banking system?

An inflow of foreign currencies exchanged into Rand Signup and view all the answers

What is the purpose of the repo rate in the banking system?

To manage the money supply Signup and view all the answers

What is the result of the bank lending out R90 to Mr. Smith in the money creation example?

The bank can lend out more money to make profits Signup and view all the answers

What is the primary function of money in a economy?

To serve as a means of payment Signup and view all the answers

What type of money has value because of the value of the material it is made of?

Commodity money Signup and view all the answers

How is money created in an economy?

When people or companies borrow money from banks Signup and view all the answers

What is the risk of using money as a store of value?

That it may lose value over time Signup and view all the answers

What is the main characteristic of fiat money?

Its value is less than the value it represents as money Signup and view all the answers

What is the opposite of money creation?

Money destruction Signup and view all the answers

What is the primary objective of the South African Reserve Bank?

To protect the value of the rand in the interest of balanced and sustainable economic growth Signup and view all the answers

What is the main instrument used by the South African Reserve Bank to achieve its inflation target?

Repo rate Signup and view all the answers

What is the repo rate?

The interest rate at which the South African Reserve Bank lends to banks Signup and view all the answers

What is the impact of an increase in the repo rate on the cost of credit to the public?

It increases the cost of credit to the public Signup and view all the answers

What is the role of the Monetary Policy Committee of the South African Reserve Bank?

To set the repo rate Signup and view all the answers

What is the relationship between the repo rate and the prime overdraft rate?

The prime overdraft rate tends to be adjusted whenever the repo rate is adjusted Signup and view all the answers