The following article will be used in the case study and the individual test. Make sure you read this article (carefully) when preparing for the case study and test. South Korea should maintain current monetary, fiscal policies, IMF says Reuters, September 6 2023 SEOUL, Sept 6 (Reuters) - South Korea should maintain current, restrictive monetary and fiscal policies as it needs to take steps to return to sustainable finances and address inflation, the International Monetary Fund (IMF) said on Wednesday. "The monetary policy rate should stay above neutral for the time being to address inflation, with the interest rate path remaining data dependent," the IMF said in a statement concluding its two-week long visit to the country. Harald Finger, Korea Mission Chief of the IMF, said, "Moderate consolidation (of the 2024 government budget) will help limit public debt and, at the same time, will support monetary policy in efforts to contain inflation." Instead of undermining economic growth, the prudent fiscal policy is judged to be instrumental in keeping South Korea's economic fundamentals strong in the medium term, Finger said at a press conference. Last month, the South Korean government proposed to raise budget spending for 2024 by the lowest rate in two decades, prioritising fiscal discipline amid weakening tax revenue due to slower economic growth. The Bank of Korea held interest rates steady for a fifth straight meeting in August, in a balance between softer inflation and heightening risks to growth. Page 3 Kaplan Business School Assessment Outline 2023 T3 "We do see a moderate increase in downside risk for Korea's growth, especially in 2024, with China's renewed slowdown," Finger said, also pointing out China's policy measures to mitigate economic slowdown and other positive factors such as the resumption of Chinese group tourism. In July, the IMF forecast Asia's fourth-largest economy to grow 1.4% in 2023, a three-year low after expansion of 2.6% in 2022 and 4.3% in 2021. It expects the economy to grow 2.4% next year. Finger told reporters the IMF decided not to evaluate South Korea's foreign exchange reserve adequacy based on its Assessing Reserve Adequacy (ARA) metrics from July. The measure is mostly for emerging economies, and given its economic characteristics, it is more appropriate to assess South Korea's on a scenario basis, Finger said. Reporting by Cynthia Kim and Jihoon Lee; Editing by Jacqueline Wong and Christopher Cushing (Source: https://www.reuters.com/markets/asia/south-korea-should-maintain-current-monetary- fiscal-policies-imf-says-2023-09-06/) Now answer these 4 questions 1) The article states that South Korea should maintain restrictive monetary policy. Explain how this may address the problem of high inflation currently facing South Korea. (3 marks) 2. Using the aggregate demand/aggregate supply (AD/AS) model, explain how the monetary policy action referred to in Question 1 would affect the South Korean economy. (You do not need to draw a diagram.) (2 marks) 3. The article refers to moderate consolidation of the budget and fiscal discipline. Explain how this will support the monetary policy action referred to in Question 1. (3 marks) 4. The article refers to China's economic slowdown and the negative impact this may have on South Korean economic growth. Explain why this might be the case. (2 marks)