Economics

MMPA508 Assignment 2

Due: 4:00pm, Thursday, 12 October 2022

Purpose

With reference to the policy assessments accompanying the Reserve Bank of New Zealand (RBNZ)

Monetary Policy Statements (posted on Blackboard along with this assignment specification),1 analyse

the determinants of economic growth, the linkages between macroeconomic variables and the role of

monetary policy in affecting macroeconomic performance.

Task

Produce a short report with your answers to the questions for either Option A or Option B on the

following page. Ensure all source material is appropriately referenced using the APA conventions.2

Format

Your report should be, at most, 1,500 words (around 5-7 pages, double space, 12 pt, Times New Roman

font) plus diagrams/graphs. A margin of 10% is allowed over the word limit. Above that, marks will be

deducted at a rate of 5% of the assignment mark per 125 words up to 10%. Work above this margin will

not be marked.

Marking criteria

The assignment will be marked on how well you answer the questions and your written communication

(see the Written Communication Skills rubric posted with this assignment).

A good report will be well structured, with a high standard of written English, well proofread, and

properly referenced according to APA conventions.

Submission

You should submit, by the assignment deadline, an electronic copy of your assignment via Turnitin on

Blackboard. The link can be found under the Assignments tab.

Name your file in the following way: MMPA508_A2_StudentID Firstname Surname. Include your

student ID number in the document itself.

Proportion of final grade

Grade weight: 12.5%. Up to 10% of the assignment marks may be deducted for failure to write

acceptable English, proofread, or to adhere to APA conventions of referencing.

1Source:

 Policy assessment 1 (23 February 2022) https://www.rbnz.govt.nz/monetary-policy/monetary-policy-statement/mps-february-2022

 Policy assessment 2 (17 August 2022) https://www.rbnz.govt.nz/monetary-policy/monetary-policy-statement/mps-august-2022

2 See, for example: - http://libguides.victoria.ac.nz/c.php?g=191240&p=1263543 - https://www.victoria.ac.nz/__data/assets/pdf_file/0003/1328394/apa-referencing-guide.pdf

Note for both Option A and Option B

For each question that involves a diagram you should (a) describe the change(s) you have shown, and

(b) explain why the adjustments you have described occur.

Option A

Answer the following questions with reference to Policy assessment 1 (23 February 2022).

1. Discuss how and why “offshore labour supply [being] constrained” affects the New Zealand labour

market, and has “contributed to historic low in unemployment”. If you wish to illustrate your

answer with an AD-AS diagram, state what assumptions you make about the AD, SRAS and LRAS

curves. For this question you may, for example, assume that the AD curve has remained fixed.

2. Discuss the effect of “higher oil prices and… supply-chain disruptions” on global prices for New

Zealand’s imports, New Zealand’s productive capacity and inflation. How would these two changes

be represented in an AD-AS diagram? For this question, assume that the AD and LRAS curves do not

shift.

3. State the key reasons why the RBNZ “increased the Official Cash Rate (OCR) to 1 percent” in its

February 2022 decision. Explain the logic behind the reasons given and why [the RBNZ believes] an

OCR increase is an appropriate response. Where relevant, you may refer to your answers from A1

and A2 above.

Option B

Answer the following questions with reference to Policy assessment 2 (17 August 2022).

1. Discuss why high international commodity prices and “supply-chain bottlenecks due to the

ongoing COVID-19 health challenge” could be a reason that “[c]ore [domestic] consumer price

inflation remains too high” according to the RBNZ. You should use an AD-AS diagram to support

your answer, making appropriate simplifying assumptions.

2. The policy assessment states that “domestic spending has remained resilient … supported by a

robust employment level [and] continued fiscal support”. Explain whether this dampens or

exacerbates the inflationary pressure discussed in B1 above using an AD-AS diagram. For simplicity

you may assume that the SRAS and LRAS curves do not shift.

3. Use a dynamic AD-AS diagram to explain how inflation that is “too high” can occur when “spending

and investment continues to outstrip supply capacity, and wage pressures are heightened.” In

addition, note any reasons given in the policy assessment as to why inflation may turn out not to be

“too high” in the near future.