Question 1

Read the media story ANZ predicts OCR to hit 3% by next year  and answer the following questions:

a) Using appropriate references and data sources, analyze whether Reserve Bank of New Zealand should go for an Official Cash Rate (OCR) increase by next year, and what would be the short-term implications of this decision on output, inflation and unemployment. You should apply the knowledge of RBNZ monetary policy learnt in lectures and explain your answer through the use of graphs.

b) What are some of the external factors highlighted in this story that might not help RBNZ in maintaining price stability in the short-term?

Question 2

In the aftermath of the Global Financial Crisis, Russel Norman (RN) suggested that the Reserve Bank of New Zealand should print money (lower the interest rate) in order to increase output. Don Brash (DB), a former governor of the Reserve Bank of New Zealand, countered that they should only print money if the government simultaneously cut spending. Explain in turn the likely impact of each of their suggestions and comment on the implied differences in their views on the state of the economy (i.e. whether they assume NZ economy is at or below full employment).

Please cite appropriate references for this question, your answer should not exceed 250 words and include two appropriately labelled diagrams, one each for RN and DB’s policy prescriptions.

Question 3

a)Media reports that NZ Q3 2021 GDP dropped due to lockdowns but impact was less severe than the lockdown of 2020. This is purely based on comparison of GDP over 2020-2021. Explain briefly why this may not reflect the actual impact on welfare and economic wellbeing experienced in the country as a result of the pandemic. You can draw on the knowledge of alternative measures of GDP as discussed in lectures.

b)New Zealand’s official unemployment rate has been falling in 2021. Does this mean there has been an improvement in the labour market? Explain your answer, drawing on the definition of unemployment rate.

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