Question

Financing the government’s support package is a contentious issue. Part of it is to come from
reprioritisation of spending, part from an IMF loan and part from new debt issued in the local bond
market. Some have suggested that the Reserve Bank should simply print the money. Apply the
augmented Philips curve policy lesson to the suggestion that the SARB prints the money. Make use of
graphs and explain what the impact might be on output and inflation

Answer 1

If SARB prints money to finance government's support package, it would mean an increase in money supply which in turn would increase inflation and output in the short - run.

According to Phillips curve, there is a trade off between unemployment and and inflation in the short - run or in other words a short - term increase in inflation in the short run can decrease unemployment in the economy.