South Africa's Fiscal & Monetary Policy

1608 Words Apr 1st, 2013 7 Pages
South Africa’s Fiscal & Monetary Policy

o Table Of Contents 


o Introduction o Body o Conclusion o References

Introduction

In this presentation I will discuss whether or not the South African fiscal and monetary policy are complimentary or not. We need to first define both the fiscal and monetary policy in their economic sense. Firstly, the formal definition of the monetary policy are all the deliberate steps of the monetary authority to affect monetary aggregates such as the money supply, the availability of credit, and interest rates in order to influence monetary demand, income, production, prices and the Balance Of Payments (Frederick C v N Fourie, Phillip Burger, 2009, 349). Monetary policy is the responsibility of the Reserve
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This ensures that the full intended impact of the fiscal stimulation on gross domestic product is felt. A monetary policy that supports a fiscal policy in its direction is called an accommodating monetary policy.
Another instance where the monetary policy would be accommodating the fiscal policy is if the fiscal authorities would be willing to finance a budget deficit. This would be implying that there would be a creation of money. The resultant effect is that this would boost the real impact of the fiscal stimulation and avoid crowding out, but this may also have a negative effect as it may result in an increase in inflation.
However, co-operation does not always occur in practice. In certain instances, both the monetary authorities and the fiscal authorities may be working in different directions, or even in opposing directions. If the fiscal and the monetary authority policy makers adopt different approaches, their policy steps could conflict.

Severe conflict can occur for example if the fiscal authority, for instance the treasury, uses an expansionary policy and pursues a policy that will increase employment. At the same time, the monetary authority uses a restrictive policy in order to decrease inflation. The resultant net effect on the real gross domestic product may be zero. However,

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