GOVERNMENT CONTROL OF INFLATION

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Presentation transcript:

GOVERNMENT CONTROL OF INFLATION MONETARY POLICY

Government Aggregate Demand falls, inflation decreases Policy Target Agreement (PTA) Reserve Bank Sets Interest rates called OCR When Inflation is high, OCR is increased. This causes… Credit to become expensive ‘C’ falls Loans become expensive ‘I’ falls NZ$ becomes strong ‘X-M’ falls Aggregate Demand falls, inflation decreases

Government Aggregate Demand falls, inflation decreases Policy Target Agreement (PTA) Reserve Bank Sets Interest rates called OCR When Inflation is high, OCR is increased. This causes… Credit to become expensive ‘C’ falls Loans become expensive ‘I’ falls NZ$ becomes strong ‘X-M’ falls Aggregate Demand falls, inflation decreases