Question 8 [15] Fiscal policy involves policy decisions on government spending, taxation and borrowing. Monetary policy, on the other hand, pertains to money, interest rates and exchange rates. Fiscal policy is the responsibility of the Minister of Finance and the National Treasury, while monetary policy is implemented by the South African Reserve Bank.

8.1. The South African Reserve Bank (SARB) is the main monetary authority in South Africa.

8.1.1. What is the primary objective of the SARB? (1)

8.1.2. Discuss the intermediate targets of monetary policy. (3)

8.2. The primary deficit provides one of the most important foundations for developing a fiscal norm - in conjunction with public debt considerations.

8.2.1. Provide the public debt ratio formula. (1)

8.2.2. Fiscal sustainability is a situation where the public debt does not increase faster than the GDP. Given the formula for 8.2.1, list two (2) determinants of fiscal sustainability. (2)

8.2.3. Explain what bracket creep is an also the effect that it has on both the government and salary earner. (3)

8.3. In order to combat demand-pull inflation, monetary policy is deemed as more effective. Do you agree? Indicate and explain how monetary policy instruments can be used to dampen demand to justify your answer. (5)