TOPIC 12

Question 1

Long run

Answer 1

real things are determined by technology- real output (stuff), employment, unemployment and capital stocks

Question 2

short run

Answer 2

inflation can cause confusion leading to effect on employment and output which are temporary

Question 3

why important to RBNZ

Answer 3

RBNZ has responsibility to undertake any element of demand or supply of money management and need to know short term because need to no abt inflation

Question 4

short run Phillips curve

Answer 4

suggests reduce unemployment more inflation but depending on how large the difference of inflation is the cost might be worth it if the reduction in unemployment is large enough

Question 5

phillips curve

Answer 5

gives a way of understanding what would happen to inflation if unemployed,ent were a problem govt were trying to reduce.

Question 6

mechanics of Phillips curve

Answer 6

1. an increase in d for labour arises a g increases 2. pool of unemployment falls 3. firms must compete for workers and therefore wages rise 4.workers have increased bargaining power and ask for higher nominal wages 4. wage costs rise 5. Because wages go up, firms raise the prices of what they sell to cover those higher costs — inflation.

Question 7

what hap[pen in 1960s 70s

Answer 7

ppl realised what govt trying to do when reducing unemployment so guessed more inflation

Question 8

the expectations augment Phillips curve

Answer 8

workers and firms observe higher inflation and build into wage negotiations (increasing inflation)

Question 9

monetary policy

Answer 9

relates to policies and actions in the money market (money demand and supply) in relation to trying to achieve certain outcomes and effects (responsible by RBNZ)

Question 10

monetary policy focus

Answer 10

inflation control (short-medium term effects)

Question 11

instrument used to try achieve inflation control

Answer 11

OCR

Question 12

OCR

Answer 12

interest rate set by the Reserve Bank to control inflation and influence loan and savings rates.

Question 13

quantity theory and OCR

Answer 13

Quantity Theory of Money says that too much money in the economy causes inflation.

The OCR helps control this by making borrowing more expensive or cheaper, which affects how much money is spent.

Question 14

policy targets agreement

Answer 14

keep inflation between 1-3% over medium term - near 2% and support maximum sustainable employment

Question 15

why not 0 inflation

Answer 15

increases risk of causing deflation as control mechanisms are not exact

Question 16

RBA 1989

Answer 16

bind the crown to keep govt out of monetary actions

Question 17

why RBNZ independent

Answer 17

operational indepence as makes monetary policy agreements credible (believable)

Question 18

RBNZ

Answer 18

inflation targeting to help maintain a stable level of prices and to support maximum sustainable employment

Question 19

three main RBNZ objectives 2021 act

Answer 19

economic objectives, financial stability objective and central bank objective

Question 20

economic objectives

Answer 20

achieving and marinating stability in the general level of price over the med term and supporting maximum sustainable employment

Question 21

how RBNZ reaches economic objectives

Answer 21

1 - 3 % inflation, adjust ocr and not clear what target for employment is

Question 22

financial stability objective

Answer 22

protecting and promoting the stability of nz financial system (banks not lending too much and keep set level of reserves)

Question 23

how RBNZ reaches financial stability objective

Answer 23

to ensure financial system responds favourably to shocks, capital socks control and influence by adjusting reserve ratio

Question 24

central bank objective

Answer 24

acting as nz central bank in a way that furthers the purpose of air

Question 25

unconventional monetary policy

Answer 25

during covid output and consumption falling and exports and imports no so fear economy would be low gdp growth govt spend 52 billion (Quainitive easing)

Question 26

Quantitative easing

Answer 26

1. treasury issues new bonds to cover deficit 2. commerical banks buy these 3. RBNZ then buys back on 2nd market at attractive price 4. this injects money into economy directly and injects reserves that the commercial banks can use into economy 5. money supply increase and inflation rate increased 6. QE haltered in 202 and ocr increased 8. RBNZ 10-15 billion loss

Question 27

what did quanitive easing do

Answer 27

increase supply of money being created, interest rates fell with encouraged consumption and borrowing