1. GOVERNMENT CONTROL OF INFLATION
MONETARY POLICY

2. 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

3. 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