Suppose the SARB decrease interest rates while oil prices is increasing

Economics Nov 28, 2020

Suppose the SARB decrease interest rates while oil prices is increasing. What would be the expected effect on real GDP and the price level? (4 marks) Price level Option 1 Uncertain 2 Increase Real GDP decreases uncertain decreases decreases 3 decreases 4 Increases A B Option 1 Option 2 Option 3 Option 4 C D

Expert Solution

Option 4

With the decrease in Interest rate, the money supply increases which increases inflation and when the oil prices are increasing the cost of production increases which reduces the output.

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