Monetary economics

prices (P)? Motivate your answer by discussing both the short-term and long-term interest rate transmission channels as well as the exchange rate transmission channel within the South African context.QUESTION 3 Read the extract below and answer the questions that follow: Oil crash could speed up rate cuts in South Africa The odds are increasingly stacked in favour of more interest rate cuts this year as the coronavirus outbreak and oil price crash may force central banks around the world to ease their monetary policies, economists say. The MPC, which is chaired by the Reserve Bank Governor, Lesetja Kganyago, is due to meet from 17 to 19 March 2020 and to announce its rate review decision on the last day. The meeting also comes a few days ahead of Moody's review of SA's credit rating on 27 March. South Africa's growth prospects have been worsened by the impact of the coronavirus on different industries and implications of the oil price crash, which caused a bloodbath in the local stocks and the rand to plummet to the lowest level seen in 2016. "The advent of COVID-19 and now oil price shocks enhance our baseline view of two further rate cuts this year," he said. Mkhwanazi said if other central banks cut their interest rates in response to the coronavirus outbreak, and if on the home front our domestic inflation is contained, this will allow the SARB space for further rate cuts. In the US, the Federal Reserve has already slashed its key interest rate by 50 basis points to near-zero, its biggest one-time move since 2008. Maarten Ackerman, chief economist and advisory partner at Citadel, also points out that the SARB is "running behind the curve" with monetary policy in South Africa still quite tight. "Most central banks have been cutting interest rates quite aggressively - we even saw a surprise Federal Reserve 50 basis point cut on Tuesday evening - so globally they have paved the way for further cuts," comments Ackerman. "A looming downgrade from Moody's, given that SA is already on a negative outlook has raised SA's risk. Consequently, we do not believe a March interest rate cut is likely, although it is possible." Source: https:/www.fin24.com/Economy/South-Africa/bil-crash-could-speed-up-rate-cuts-in-south-africa-20200310 Question Assume that at the next MPC meeting, the South African Reserve Bank decides to implement a restrictive monetary policy. What will the impact of a higher repo rate be on real production/economic activity (Y) and