Exam (elaborations)
ECS3701 MEMO OCT0NOVEMBER 2020
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THIS DOCUMENT CONTAINS THE MEMO/SOLUTIONS TO THE OCTOBER / NOVEMBER OCT/NOV 2020 UNISA TO BE USED AS A GUIDE
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www.theeconomistsoe.com
Answer all the FIVE questions
Question 1 [20 marks]
1.1 Mention and explain the 2 types of monetary policy mandates. (10)
Hierarchical and dual mandate
Mandates that put the goal of price stability first and believe that as long as this is
achieved the other goals can be achieved more easily are called hierarchical
mandates. Reserve System and the Federal Open Market Committee shall maintain
long-run growth of the monetary and credit aggregates commensurate with the
economy’s long-run potential to increase production, so as to promote effectively the
goals of maximum employment, stable prices, and moderate long-term interest rates.”
This is a dual mandate to achieve two co-equal objectives: price stability and
maximumemployment.
Theoretically there is not much difference between the two mandates, however, in
reality there
may be. The public and politicians may believe that the hierarchical mandate puts too
much emphasis on keeping inflation low and not enough on reducing business-cycle
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