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Macro-economic influences on the New Zealand economy · Part 3 of 3
9 exam-style questions with model answers, plus 12 quick multi-choice questions — every question on this part of the standard, grouped by the 3 pages of notes they come from.
Write a full answer before you reveal the model one. That comparison is where the learning happens.
Explain how the Reserve Bank of New Zealand uses the Official Cash Rate to reduce inflation.
Explain in detail how a rise in the OCR affects inflation through both the spending channel and the exchange rate channel.
The RBNZ raises the OCR to bring inflation back within its target band.
Compare and contrast the effectiveness of this policy in achieving the goals of price stability and full employment. Refer to the AD/AS model and the foreign exchange model in your answer.
Explain what expansionary fiscal policy is and what it does to aggregate demand and to the government's budget.
New Zealand signs a free trade agreement that removes tariffs in both directions with a major trading partner.
Explain in detail the impact on both aggregate demand and aggregate supply, and on the goal of economic growth.
A government wants to achieve economic growth without breaching the RBNZ's inflation target.
Compare and contrast the effectiveness of expansionary fiscal policy and supply side policy in achieving this. Refer to the AD/AS model in your answer.
Explain what a depreciation of the New Zealand dollar means and its effect on the price of exports and imports.
The RBNZ raises the OCR.
Using the foreign exchange model, explain in detail how this affects the exchange rate, and then explain the effect on inflation.
The New Zealand dollar depreciates significantly.
Compare and contrast the impacts of this on the goals of price stability and a balanced current account. Refer to the foreign exchange model and the AD/AS model in your answer.