Answered: Continued monetary tightening 05…

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter22: Inflation

Section: Chapter Questions

Problem 6SCQ: The Consumer Price Index is subject to the substitution bias and me quality/new goods bias. Are the...

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Continued monetary tightening 05 October 2022 The Monetary Policy Committee today increased the Official Cash Rate (OCR) to 3.5% from 3.0%. The Committee agreed it remains appropriate to continue to tighten monetary conditions at pace to maintain price stability and contribute to maximum sustainable employment. Core consumer price inflation is too high and labour resources are scarce. Global consumer price pressures remain heightened. The global demand for goods and services is exceeding supply capacity, putting upward pressure on prices. Food and energy prices are being particularly exacerbated by the war in Ukraine. A recent decline in oil prices and an easing in some supply-chain constraints have seen headline inflation measures fall in some countries. However, core measures of inflation have risen and persist. Central banks are tightening monetary conditions, implying a weaker growth outlook for New Zealand's trading partners. In New Zealand, the level of domestic spending has remained resilient to date, in the face of slowing global growth and higher domestic interest rates. Employment levels are high, and household balance sheets remain resilient despite the fall in house prices. New Zealand's productive capacity is still being constrained by labour shortages and wage pressures are heightened. Overall, spending continues to outstrip the capacity to supply goods and services, with a range of indicators continuing to highlight broad-based pricing pressures. Committee members agreed that monetary conditions needed to continue to tighten until they are confident there is sufficient restraint on spending to bring inflation back within its 1 to 3% per annum target range. The Committee remains resolute in achieving the Monetary Policy Remit. How does the RBNZ see current levels of GDP relative to full employment GDP impacting on inflationary pressure? Provide evidence from the article to support your answer

Diagram 1
Price
level
PLB
PLA
Diagram 2
Price
level
PLA
PLB
Diagram 3
Price
level
PLC
PLB
PLA
YA YB
B
YA YB
B
LAS
YA YB Yc
SAS
ADA
Real GDP
SASA
SAS B
ADA
ADB
AD
Real GDP
SAS
ADB
ADC
Real GDP

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