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the relationship between unemployment and inflation
MACRO ECONOMIC OBJECTIVES OF SOUTH AFRICA
the relationship between unemployment and inflation
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Our individual economic life is impacted by the decisions made in our economic policies. Thus making the country’s economic performance significant. Some of South Africa’s macroeconomic objectives are: inflation between 3% -6%, relative price stability, low unemployment, sustainable economic growth, exchange rate constancy and balance of payments stability. The biggest challenge for any economy however is to achieve these goals all at the same time.These objectives prompt for government to intervene in the economy, to try and achieve most of these objectives at the same time. Therefore it is imperative that policy creators prioritize these objectives. The focus in most if not all central banks is to achieve price stability and the SARB is no exception.
Monetary policy
Monetary policy can be defined as a set of policies that a country's central bank sets in motion to influence the supply of money and interest rates and thus influencing the country's economic activity and the amount of inflation. Monetary policy is based on the logic that all monetary variables are related for example,the quantity of money and the interest rate, and macroeconomic variables for example, price level, unemployment rate and GDP. In South Africa the SARB has purely just focused on the goal of achieving price stability as it's objective. The monetary policy in South Africa wants to protect the buying power of the rand and this is clearly stated in the objectives of the SARB. To achieve this goal the SARB has chosen the primary objective of inflation targeting which is trying to set inflation between 3-6%, this is done with the use of changing interest rate to influence the level of spending and credit extension in the economy. This is all done to achi...
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... general interest rates to increases this may crowd out the spending in the economy.
A possible conflict may arise between the fiscal and monetary policy objectives, if an expansionary fiscal policy results in a reduction of capital investment and in risk taking by the private sector. This could also aid on to inflation increasing rapidly in the near future.
Works Cited
Beires, L. (2009). Understanding the difference between monetary and fiscal policy. Retrieved May 01, 2014, from KZN Department of Economic Development And Tourism: http://www.kznded.gov.za/Portals/0/UNDERSTANDING%20THE%20DIFFERENCES%20BETWEEN%20FISCAL%20AND%20MONETARY%20POLICY.pdf
Mollentze, S. (2009, August 26). How does fiscal policy affect monetary policy? Retrieved May 01, 2014, from Financial Markets Journal: http://www.financialmarketsjournal.co.za/10thedition/printedarticles/policies.htm
Throughout Eveline Adomait and Richard Maranta’s Dinner Party Economics there is continuous discussion surrounding the problems that economies face around the world and the various methods that can be used to alter the state of the current economic conditions. Changes in consumer spending patterns can become a problem for the economy as a whole, potentially resulting in over-inflation or recession. Implementing discretionary policies such as monetary policy through changing interest rates, and fiscal policy through taxation and government spending, makes it possible to fix these economic problems.
Fiscal Policy is described as changing the taxing and spending of the federal government for purposes of expanding or contracting the level of aggregate demand; these are designed to increase short-run economic growth. In a recession, an expansionary fiscal policy involves lowering taxes and increasing government spending. By cutting taxes, increasing government spending programs, and increasing transfer payments, more money is in the economy, more income, and more spending. This can be done through the federal budget process; however, the problem with fiscal policy is lag time. This process can take so long (as long as a year or more) that Discretionary Fiscal Policy is very rarely used in the federal governmen...
Monetary policy is the control of monetary variables such as, interest rates and money supply, by governments in order to stimulate the economy. Monetary policy can also be utilised in order to control the length and severity of recessions.
Fiscal policy consists of two basic variations called expansionary and contractionary fiscal policy. Each is recommended to correct different problems created by business-cycle instability.
Fiscal policy uses changes in taxes and government spending to affect overall spending and stabilize the economy. When lowering taxes the people have more to spend then the government decreases spending and the economy slows down therefore the economy stabilizes. The objective of fiscal policy is the governments’ typical use fiscal policy to promote strong and sustainable growth and reduce poverty. During periods of recession congress has the option to decrease taxes to give households more disposable income so they can buy more products. Therefore, lowering tax rates increases GDP.
Fiscal Policy involves the Government changing the levels of Taxation and Government Spending in order to influence AD (Aggregate Demand) and therefore the level of economic activity.
The federal government influences economic activity in an attempt to maintain growth, employment, and price stability through fiscal policies. Our government influences economic activity by implementing a discretionary fiscal policy or a monetary policy. A discretionary fiscal policy is used to expand or contract economic growth. Monetary policies are by the Federal Reserve to expand or contract the economy’s wealth. Both discretionary and monetary policies affect the aggregate demand and the aggregate supply.
Monetary Policy is the changes in the quantity of money in circulation designed to alter interest rates and affect the level of overall spending. Fiscal policy is t...
Government involvement to boost the credit and domestic demand of the private sector could lead to the economy being exposed to the risk of lower private investment growth and high-inflation.
Its main focus is on monetary and other financial markets, determination of interest rates, extent to which monetary policy influences the behavior of the economic units and the implication such influence have in the context of macroeconomics. Hence, monetary policy could be defined as an economics of money supply, prices and interest rate, and their consequences in the economy. It therefore focuses on monetary and other financial markets, determination of interest rate, extent to which these policies, influences the behavior of economic units and the implications the influence has in the macroeconomic context. (Jagdish,
One of the tools of Keynesian approach is to adopt expansionary fiscal policy to increase economic activity within economy. Expansionary fiscal policy aims to cut taxes and increase government spend...
The term Monetary policy refers to the method through which a country’s monetary authority, such as the Federal Reserve or the Bank of England control money supply for the aim of promoting economic stability and growth and is primarily achieved by the targeting of various interest rates. Monetary policy may be either contractionary or expansionary whereby a contractionary policy reduces the money supply, reduces the rate at which money is supplied or sets about an increase in interest rates. Expansionary policies on the other hand increase the supply of money or lower the interest rates. Interest rates may also be referred to as tight if their aim is to reduce inflation; neutral, if their aim is neither inflation reduction nor growth stimulation; or, accommodative, if aimed at stimulating growth. Monetary policies have a great impact on the economic stability of a country and if not well formulated, may lead to economic calamities (Reinhart & Rogoff, 2013). The current monetary policy of the United States Federal Reserve while being accommodative and expansionary so as to stimulate growth after the 2008 recession, will lead to an economic pitfall if maintained in its current state. This paper will examine this current policy, its strengths and weaknesses as well as recommendations that will ensure economic stability.
The Social Studies Help Center (n.d.). Monetary and Fiscal Policy. Retrieved November 5, 2011, from http://www.socialstudieshelp.com/eco_mon_and_fiscal.htm
In the study of macroeconomics there are several sub factors that affect the economy either favorably or adversely. One dynamic of macroeconomics is monetary policy. Monetary policy consists of deliberate changes in the money supply to influence interest rates and thus the level of spending in the economy. “The goal of a monetary policy is to achieve and maintain price level stability, full employment and economic growth.” (McConnell & Brue, 2004).
These two policies use to try to shorten recessions. Fiscal policy has its initial impact in the goods markets, then monetary policy has its initial impact mainly in the assets markets, which both effect on both level of output and interest rates. (R. Dornbusch et al., 2008)