Question 1: The South African Reserve bank recently announced an increase in the policy interest rate of 100 bases points, bringing the new policy rate to 4% and market interest rate to 5%. At the time of the announcement John was deciding whether to open a 1 year fixed deposit account that will yield him a 5 % return. Assuming an inflation rate of 5 % at the time of the announcement, do you think John should open that fixed deposit account?
Question 2: Briefly describe the concept of a wage-price spiral and explain how it operates?
Question 3: Assume the South Africa economy is in a labour market equilibrium, with an equilibrium level unemployment rate of 8% a stable inflation rate of 4% and no bargaining gap. Improved business confidence causes an increase in investment spending by firms. Use a graph to demonstrate and explain the impact of the increase in investment spending on:
i. The unemployment rate
ii. The Bargaining gap
iii. Inflation
iv. Expected inflation
v. Phillips curve
Question 4: Distinguish between negative demand and supply side shocks and their impact on unemployment, and inflation levels in the in the economy
Question 5: Six years ago the then South African President fired Finance Minister Nene. According to the media the decision led to a decrease in confidence in the South African economy and the selling of South African bonds and other financial assets. All else being equal, explain the impact this would have had on:
i. The exchange rate
ii. Net exports
iii. Aggregate demand