Monetary Policy in South Africa
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Questions and Answers

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?

    <p>An inflow of foreign currencies exchanged into Rand</p> Signup and view all the answers

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

    <p>To manage the money supply</p> Signup and view all the answers

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

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

    What is the primary function of money in a economy?

    <p>To serve as a means of payment</p> Signup and view all the answers

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

    <p>Commodity money</p> Signup and view all the answers

    How is money created in an economy?

    <p>When people or companies borrow money from banks</p> Signup and view all the answers

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

    <p>That it may lose value over time</p> Signup and view all the answers

    What is the main characteristic of fiat money?

    <p>Its value is less than the value it represents as money</p> Signup and view all the answers

    What is the opposite of money creation?

    <p>Money destruction</p> Signup and view all the answers

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

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

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

    <p>Repo rate</p> Signup and view all the answers

    What is the repo rate?

    <p>The interest rate at which the South African Reserve Bank lends to banks</p> 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?

    <p>It increases the cost of credit to the public</p> Signup and view all the answers

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

    <p>To set the repo rate</p> Signup and view all the answers

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

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

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