Monetary Policy Of New Zealand

Microeconomic policies promote the efficient operation of markets as the most effective mechanism for achieving efficient allocation and use of resources, raise productivity and increase aggregate supply. Increased aggregate supply will result in decreased inflationary pressures and increased international competitiveness as Australian producers are able to supply international markets with a greater volume of goods at lower prices. Greater export earnings will consequently improve Australia’s terms of trade, and will decrease the current account deficit. Microeconomic reforms that promote increased competition in both domestic and international markets will also encourage greater innovation and cheaper product, which will benefit consumers. Increases in productivity and aggregate supply will also result in improvements in labour productivity. Higher productivity and greater export earnings will result in wage increases for Australian labour, and subsequently living standards will improve. As a result of higher wages, aggregate demand will increase thus creating further opportunities for increases in

According to Department of Finance, in 2013 the estimated percentage for Real Economic Growth was 0.1%, down from 0.5% projected at budget for 2012. This estimate is slightly more prudent than the latest consensus among private sector forecasters as it reflects weakened economic conditions. Due to the blockage of New Brunswick Mine in 2013, it vastly affected New Brunswick’s economic growth. In addition, sluggish employment, weaker exports and flat consumer expenditures in 2013 also constrained growth. There were more employment in some sectors such as construction, agriculture and natural resource.

The Federal Reserve Act lays out the monetary policy that states that the Board of Governors and the Federal Open Market Committee should look for "to support effectively the aims of maximum employment, stable prices, and moderate long-term interest rates." The pre-requirement for highest sustainable growth and employment rates along with long term interest rates is price stability in the long run. Long run stable prices prevents merchandise, services, materials and labor from getting distorted by inflation and hence turn out to be good indicators to the proficient distribution of resources and consequently add to better and higher standards of living (Meyer, 2004). Moreover, price stability promotes saving and generates capital since the risk of inflation causing attrition of asset values is decreased and hence people are driven to save more and business tend to invest more.

The last five years have shown that traditional monetary policies predicated on interest rate management by the Federal Reserve no longer deliver the economic growth they were once believed to. Keynesian economics has proved to not be as effective as once thought, which has led to the Federal Reserve choose alternative means to stimulate the economy and indirectly manage exchange rates (Hakkio, 1986). The uncertainty over interest rate polices has fortunately not led to increases in inflation, which has typically been the case in the past (Kopcke, 1988). The current economic conditions and the approaches the Federal Research are taking however are cause for concern, and from a personal standpoint many decisions are being evaluated more precisely.

There are two ways the economy can be assisted in growing and sustaining itself. First through fiscal policy from the national governments help of changing taxes and spending, then Monetary policy, the managing of money. The two are supposed to work together to help create a better economy but, at times fall short. Leaders in the government for the most part have a top priority to stay in their position, with that in mind they tend to give the people the immediate satisfaction they want which is increased spending and reduced taxes. With this approach fiscal policy is considered expansionary, restrictive monetary policy is what is needed to stop inflation to counteract this.

It widely recognized that the monetary policy within a country should be primarily concerned with the pursuit of price stability. However, it is still not clear how this objective can be achieved most effectively. This debate remains unsettled, but an increasing number of countries have adopted inflation targeting as their monetary policy framework. (Dr E J van der Merwe, 2002) This topic of Inflation targeting is a subject which immediately conjures different perceptions from different people. Many feel that low inflation should be a main aim of monetary policy, while others (such as trade union activists) believe that a higher growth rate to stimulate jobs should be the main concern.

The Federal Reserves concerns are many; because of the economic diversity of our country. In November 2002, the fed reduced the targeted federal funds rate 50 basis points, to 1.25 percent. The policy easing allowed the Committee to return to an assessment that the risks to its goals were balanced. The Fed has inflation expectations well contained, and the additional monetary stimulus seemed to offer worthwhile insurance against the threat of persistent economic weakness and substantial declines in inflation from already low levels.

Booms, busts, recessions, and growth; all of the preceding terms are characteristics of a typical market economy. There are times when an economy can flourish spectacularly and there are times when it can fail miserably. Consequently, it is the responsibility of a nation’s central bank to manage these fluctuations through conducting effective monetary policy. The following paper will assume the perspective of the Reserve Bank of Australia (RBA) and critically analyze the past, present, and future of the Australian economy while considering specific sectors.

The Federal Government uses the monetary policy and fiscal policy to establish and determine the best way to manage the economy. Monetary policy is used by the Federal Reserve to manage the money supply. This includes credit, cash, check, and money market mutual funds, with loans, bonds, and mortgages being the most important. This policy can be broken into two categories: monetary restraint and monetary expansion. As it states, one is trying to restrain the market while the other expresses expanding the market. With control over the money supply, the two categories for monetary policy can manage the inflation of the economy. After this has been complete, the unemployment rate is a second objective that is handled and reduced. Fiscal policy is used as reference to the tax and spending policies, and is handled completely by the Federal Government rather than the independent agency of the Federal Reserve. In comparison to the monetary policy, there is also two sub categories of expansion and restriction. This paper will explain why I believe the monetary restraint policy is the best option for maintaining a stable economy through the use of controlled spending by limiting the access consumers have to money, its reliability in being the solution to a growing problem, and the benefits we see from past occasions. Using the monetary restraint policy will require the Federal Reserve to increase the interest rate nation-wide requiring citizens to decrease spending and borrowing.

On May 3rd 2016 the Reserve Bank of Australia (RBA) introduced a new monetary policy. This policy resulted to the conclusion reached by the Reserve Bank of Australia to cut the official interest rates from 2% to 1.75% (decrease of 0.25%). This is due to the country displaying that inflationary pressures are lower than that estimated for the period. There are numerous cuts in interest rates around Australia and the Australian general economic conditions throughout 2015 and through to 2016. What are the key objectives of macroeconomics and how do they effect and change the supply of money with interest rate? To make a decision the RBA must examine the economic growth and what guarantees long- run economic growth? Money has key functions but what are they and how does it function within the reserve bank? How will lowering the cash rate provide a solution to the economies situation? What is the result of a lower cash rate for future demands for consumption?

Monetary policy, ‘The government’s policy relating to the money supply, bank interest rates, and borrowing’ (Collin: 130), is another tool available to the government to control inflation. Figure 4 shows, that by increasing the interest rate (r), from r1 to r2, the supply of money (ms) is reduced from Q1

Summarise the position of the New Zealand economy in the first half of 2015 by presenting a table of data on:

Monetary policy can help the economy back to the long run equilibrium. Let the initial equilibrium

After financial crisis in 2008, inflation of most of the western countries went down dramatically, especially in the Eurozone. Inflation has been below the European Central Bank’s target for a couple of years and is anticipated to remain at a low level in the near future. Such a low level of inflation goes out of most central banks’ goal, contributing to a risk that this situation will lead to a slide into deflation. (Bernoth, Fratzscher and König, 2014). To prevent deflation caused by a financial crisis or to revive economic growth, according to Herbst, Wu and Ho (2014), central banks can use interest rate policy to promote lending by lowering interest rate to encourage economic activity. Central banks can also use money supply policy that central banks pump money directly into the financial market to increase circulating money supply. Today this is known as quantitative easing (QE).

The inflation rate in Zimbabwe was recorded at -1.64 percent in April of 2016. Inflation Rate in Zimbabwe averaged 1.12 percent from 2009 until 2016, reaching an all time high of 5.30 percent in May of 2010 and a record low of -7.50 percent in December of 2009. Inflation Rate in Zimbabwe is reported by the Reserve bank of Zimbabwe. As inflation rates is too high at Zimbabwe it has an impact of uncertainty on the allocation of labor resources and shows that the economy produces less output with a given quantity of productive resources. The labor market’s reaction to unanticipated inflation depends upon the flexibility of nominal wages. As a general rule, both the quantity of labor services that workers supply and the quantity that business firms demand depend upon the real wage rate the nominal wage rate adjusted for the level of prices .The interaction of the supply and demand for labor determines the equilibrium value of the real wage the nominal wage adjusts upward or downward as inflation. Since 2009, Zimbabwe’s economy has started to recover from the 1999-2008 crises that saw economic output cumulatively decreasing by more than 45%. The country is ranking very low on many key labor market indexes such as doing business, Government Indicators .On the other hand, Zimbabwe has experienced a high increase of gross capital formation, which reached 25% of GDP in 2012 in comparison with 2% in 2006.